QUESTION Kidwell Industries has equity capital of $12 million, total debt of $8 million, and sales last year of $30 million.a. It has a target assets-to-sales ratio of 0.6667, a target net profit margin of 0.04, a target debt-to-equity ratio of 0.6667, and a target earnings retention rate of 0.75. In steady state, what is […]
QUESTION Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according to the […]
QUESTION The long-term debt section of the balance sheet of the Queen Annes Lace Corporation appears as follows:91/4%mortgage bonds$2,500,000123/8%second mortgage bonds1,500,000101/4%debentures1,000,000141/2%subordinated debentures1,000,000$6,000,000If the average earnings before interest and taxes of the company is $1.5 million and all debt is long term, what is the overall interest coverage? Interest Expense 91/4%mortgage bonds $2,500,000 231250 (9.25 % […]
QUESTION You currently have $100,000 invested in a portfolio that has an expected return of 12% and a volatility of 8%. Suppose the risk-free rate is 5%, and there is another portfolio that has an expected return of 20% and a volatility of 12%. a. What portfolio has a higher expected return than your portfolio […]
QUESTION In mid-2012, Coca-Cola Company (KO) had a share price of $39. Its dividend was $1.00 per year, and you expect Coca-Cola to raise this dividend by approximately 7% per year in perpetuity. a. If Coca-Colas equity cost of capital is 8%, what share price would you expect based on your estimate of the dividend […]
QUESTION Stock Prices and Returns Suppose you expect Walgreen Company (a drugstore chain) to pay dividends of $0.44 per share and trade for $33 per share at the end of the year. If investments with equivalent risk to Walgreens stock have an expected return of 8.5%, what is the most you would pay today for […]
QUESTION Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. It plans to lower the price to $300 next year. Its cost of goods sold for the Hyper 500 is $200 per unit, and this years sales are expected to be 20,000 units. a. Suppose that if Hyperion drops the […]
QUESTION Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) 1 2 3 4 Coupon rate (annual payments) 0.00% 10.00% 6.00% 12.00% YTM 2.000% 3.908% 5.840% 5.783% a. Use arbitrage to determine the yield to maturity of a two-year, zero-coupon bond. b. What is the zero-coupon yield curve for […]
QUESTION Your firm is considering the purchase of a new office phone system. You can either pay $32,000 now, or $1000 per month for 36 months. a. Suppose your firm currently borrows at a rate of 6% per year (APR with monthly com- pounding). Which payment plan is more attractive? b. Suppose your firm currently […]
QUESTION You have an outstanding student loan with required payments of $500 per month for the next four years. The interest rate on the loan is 9% APR (monthly). You are considering making an extra payment of $100 today (that is, you will pay an extra $100 that you are not required to pay). If […]
