Problem 1: What is the sustainable growth rate of a firm with the following selected financial results?
Sales $20,300
Earnings after taxes $1,015
Equity multiplier 2X
Assets $10,150
Annual Dividend $406
a. 12%
b. 8%
c. 10%
d. 6%
Problem 2. Stock and bond markets
a. are independent of each other as to prevailing rates of return.
b. offer identical returns in order to compete for the investors' dollars.
c. would offer identical returns if the respective investments had identical terms to maturity.
d. offer returns that tend to move up and down together although equity returns are higher because stocks are riskier than bonds.
Problem 3. The efficient market hypothesis asserts that
a. it is virtually impossible to consistently pick stocks that perform exceptionally well because all publicly available information is immediately reflected in stock prices.
b. studying historic patterns of stock price movements will generally identify winning investments.
c. fundamental analysis performed by individuals often reveals bargains despite the fact that professionals analyze all information as soon as it becomes available.
d. all of the above
Problem 4. Analysts expect a stock to be selling for $22 in one year. It is also expected to pay a $1 dividend during the year. If you require a 15% return on this kind of investment, what is the most you can pay for the stock today?
a. $21.00
b. $18.70
c. $20.00
d. none of the above
Problem 5. Financial leverage is a direct function of the ratio of:
a. EAT to sales.
b. EBIT to sales.
c. interest expense to EBIT.
d. EAT to the number of shares of common stock.1. What is the sustainable growth rate of a firm with the following selected financial results?