Answer each of the following questions. Show all calculations where necessary. Each answer Is worth 20.5 points.
1. Lucky Lenders, Inc., has current liabilities of $200 million, long-term debt of $110 million, current assets of $322 million, fixed assets of $619 million, and total equity of $631 million. The market value of the firm s current assets is $330 million, and the market value of as fixed assets is $645 million. The market value of its current liabilities is $200 million, and the market value of its long-term debt is $110 million. The firm's tax rate is 30 percent, and it pays 6 percent interest on its long-term debt. The company has 10 million common shares outstanding that trade at $22 per share. There s no preferred stock, and net income available to common shareholders was $15 million. Calculate Lucky Lenders, Inc.'s, Debt ratio, Debt-to-equity ratio, and Price-earnings (PE) ratio.
2. Consider a bond with a 6.2 percent coupon rate, paid semiannually, that has 20 years until it matures. If the current market interest rate is 7.4 percent, and the bond is priced at $925, what's the bond's present value? Should you buy this bond? Explain why or why not.
3. At the start of the year, you owned $8,300 of IBM stock, $12,900 of GE stock, $22,000 of Apple stock, and $5,600 of Bank of America stock. During the year, IBM, GE, Apple, and Bank of America returned 8.4 percent, -2.6 percent, -11 percent, and 9.9 percent, respectively. What's your portfolio's overall return for the year?