1. Your firm expects to incur a ($500K) loss in year 1 and make $100K of net income in year 2 and $300K of net income in year 3. The retention ratio is projected to be 100%. The beginning equity balance on the balance sheet at the beginning of year 1 is $600K. Assuming you sell an additional $500K of stock in year 2, the equity balance at the end of year 3 would be expected to be __________.
a. $100K
b. $1,000K
c. $700K
d. $500K
2. Pet Delight specializes in gourmet pet treats. Sales estimates in millions for the next two quarters are $500 for 1Q and $600 for 2Q. All sales are made on credit. The company's beginning accounts receivable balance is $250. The company's Days in Receivables is 30 days. Cash collections from Accounts Receivables in 1Q would be estimated to be:
a. $417
b. $250
c. $750
d. $583
e. $167
3. Continuing from above, Pet Delight has a Payables period of 45 days. Purchases are expected to be 50% of next quarter's sales. The company's beginning Accounts Payable balance is $125. Using sales data from problem 2, disbursements during 1Q would be estimated to be:
a. $275
b. $425
c. $725
d. $325
e. $583
4. Using the Capital Asset Pricing Model, estimate the cost of equity for the following company. Assume rate on unsecured corporate bonds is 7%, the rate on Treasury Bills is 3%, the expected return for the overall market is 10%, and the company's beta is 2.0. The cost of equity for this company would be ________.
a. 9.0%
b. 17.0%
c. 20.0%
d. 23.0%