Question #1

AD Copper is increasing next year's dividend to $5 per share. The forecast stock price next year is $105. Equally risky stocks of other companies offer expected rates of return of 10%. At what price should AD common stock sell for?

Solution:

Question #2

Your broker faxed you the following information on two semiannual coupon bonds that you are considering as a potential investment. Unfortunately, your fax machine is blurring some of the items and all you can read from the fax on the two different bonds is the following information:

IBM Coupon Bonds

AOL Coupon Bonds

Face Value (Par)

$ 1,000

$ 1,000

Coupon Rate

9.5%

Yield to Maturity

7.5%

9.5%

Years to Maturity

10

20

Price

$ 689.15

Fill in the missing information from the information sent by broker.

Solution:

Question #3

Here are data on two stocks, both of which have discount rates of 15%

Adidas

Nike

Return on Equity

15%

10%

Earnings per share

$ 2.00

$ 1.50

Dividends per share

$ 1.00

$ 1.00

a)What are the dividend payout ratios for each firm?

b)What are the expected dividend growth rates for each stock?

c)What is the value of each Stock?

Solution:

Question #4

You are an analyst reviewing Riyadh Industries; the following information is available about the company;

Accounts receivable turnover..............26

Noncurrent asset....................$ 300,000

Current Ratio..................................2

Total debt to equity ratio..................1

Beginning accounts Receivable...$ 50,000

Expenses (excluding CGS).......... $ 350,000

Return on end of year equity ............25%

Gross Profit margin ratio................35%

Sales (all on credit)...............$ 1,000,000

Days' sales in inventory............36 Days

Calculate the following:

a) Cost of goods sold for the year.

b) Total equity of the company.