3-11) Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data: Total assets turnover: 1.5 Gross profit margin on sales: (sales – Cost of goods sold) / Sales = 25% Total liabilities-to-assets ratio: 40% Quick ratio: 0.80 Days sales outstanding (based on 365-day year): 36.5 days Inventory turnover ratio: 3.75
Partial Income Statement information
Cost of goods Sold ?
Cash ? Accounts Payable ?
Accounts receivable ? Long-term debt $50,000
Inventories ? Common Stock ?
Fixed assets ? Retained earnings ?
Total assets $400,000 Total Liabilities and equity ???
4-8) You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly. What is the monthly loan payment? What is the loan’s EFF%?
5-9) The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1000 at maturity. Bond 1, has a maturity of 15 years, and Bond S has a maturity of 1 year.
a) What will the value be of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, (3) 12%? Assume that there is only one more interest payment to be made on Bond S.
b) Why does the longer-term (15 year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
6-6)The market and Stock J have the following probability distributions:
Probability Rm Rj
0.3 15% 20%
0.4 9 5
0.3 18 12
a) Calculate the expected rates of return for the market and Stock J.
b) Calculate the standard deviations for the market and Stock J.
6-8)As an equity analyst you are concerned with what will happen to the required return to Universal Toddle Industries’s stock as market conditions change. Suppose rrf = 5%, rm = 12 % and B UTI = 1.4
a. Under current conditions, what is r uti, the required rate of return on UTI stock?
b. Now suppose rrf (1) increases to 6% or (2) decreases to 4%. The slope of the SML remains constant. How would this affect rm and r uti?
c. Now assume rrf remains at 5% but rm (1) increases to 14% or (2) falls to 11%. The slope of the SML does not remain constant. How would these changes affect R uti?
7-17) Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The company’s weighted average cost of capital is 12%.
a. What is the terminal, or horizon, value of operations? (Hint: find the value of all free cash flows beyond year 2 discounted back to year 2).
b. Calculate the value of Kendra’s operations.
8-3)Assume that you have been given the following information on Purcell Industries:
Current stock price = $ 15 Strike price of option = $15
Time to maturity of option = 6 months Risk-free rate = 6%
Variance of stock return = 0.12
d1 = 0.24495 N(d1) = 0.59675
d2 = 0.00000 N(d2) = 0.50000
According to the Black-Scholes option pricing model, what is the option’s values?
9-7) Shi Importers’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 40%, rd = 6%, rps = 5.8%, and rs = 12%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC?
9-11) RadonHomes’s current EPS is $6.50. It was $4.42, 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $36.00.
a) Calculate the historical growth rate in earnings. (hint: this is a 5-year growth period).
b) Calculate the next expected dividend per share, D1. (hint: D0 = 0.4($6.50 = $2.60). Assume that the past growth rate will continue.
c) What is Radon’s cost of equity, rs?
12-2) Refer to problem 12-1. What would be the additional funds needed if the company’s year end 2013 assets had been $7 million? Assume that all other numbers, including sales, are the same as in Problem 12-1 and that the company is operating at full capacity. Why is the AFN different from the one you found in Problem 12-1? Is the company’s “capital intensity” ratio the same or different?