16 Stuart Company's manager believes that economic conditions during the next year will be strong, normal, or
Question:
16
Stuart Company's manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below. What's the standard deviation of the estimated returns?
Economic
Conditions
Prob.
Return
Strong
30%
25.35%
Normal
40%
10.0%
Weak
30%
16.0%
Select the correct answer.
a. 15.83%
b. 16.43%
c. 16.63%
d. 16.03%
e. 16.23%
15
You are considering investing in a European bank account that pays a nominal annual rate of 18%, compounded monthly. If you invest $5,000 at the beginning of each month, how many months would it take for your account to grow to $169,000? Round fractional months up.
Select the correct answer.
a. 34
b. 32
c. 30
d. 28
e. 24
23
Pettijohn Inc.
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Balance Sheet (Millions of $)
Assets
2016
Cash and securities
$ 1,554.0
Accounts receivable
9,660.0
Inventories
13,440.0
Total current assets
$24,654.0
Net plant and equipment
17,346.0
Total assets
$42,000.0
Liabilities and Equity
Accounts payable
$ 7,980.0
Notes payable
5,880.0
Accruals
4,620.0
Total current liabilities
$18,480.0
Long-term bonds
10,920.0
Total liabilities
$29,400.0
Common stock
3,360.0
Retained earnings
9,240.0
Total common equity
$12,600.0
Total liabilities and equity
$42,000.0
Income Statement (Millions of $)
2016
Net sales
$58,800.0
Operating costs except depreciation
$54,978.0
Depreciation
$ 1,029.0
Earnings bef int and taxes (EBIT)
$ 2,793.0
Less interest
1,050.0
Earnings before taxes (EBT)
$ 1,743.0
Taxes
$ 610.1
Net income
$ 1,133.0
Other data:
Shares outstanding (millions)
175.00
Common dividends
$ 509.83
Int rate on notes payable & L-T bonds
6.25%
Federal plus state income tax rate
35%
Year-end stock price
$77.69
Refer to the data for Pettijohn Inc. What is the firm's dividends per share?
a. $2.62
b. $3.88
c. $3.53
d. $2.91
e. $3.20
3
Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 125,000 shares outstanding, and its debt-to-assets ratio was 46%. How much debt was outstanding?
Select the correct answer.
a. $2,422,168
b. $2,421,882
c. $2,421,596
d. $2,422,454
e. $2,421,310
11
Muscarella Inc. has the following balance sheet and income statement data:
Cash
$ 14,000
Accounts payable
$ 42,000
Receivables
70,000
Other current liabilities
28,000
Inventories
210,000
Total CL
$ 70,000
Total CA
$294,000
Long-term debt
70,000
Net fixed assets
126,000
Common equity
280,000
Total assets
$420,000
Total liab. and equity
$420,000
Sales
$280,000
Net income
$ 21,000
The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.00, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change?
Select the correct answer.
a. 9.75%
b. 8.88%
c. 9.17%
d. 10.04%
e. 9.46%
34
McGaha Enterprises expects earnings and dividends to grow at a rate of 18% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
Select the correct answer.
a. $24.63
b. $24.08
c. $22.98
d. $25.18
e. $23.53
44
Your bank pays 4% interest annually. You have $2,500 invested in the bank. How long will it take for your funds to double?
a. 15.95
b. 14.39
c. 15.15
d. 17.67
e. 16.79
Expert Answer:
