Construct a spreadsheet to replicate the analysis of Table 12.5. That is, assume $10,000 is invested in a single asset which returns 7 percent annually for 25 years and $2,000 is placed in 5 different investments, earning returns of –100%, 0%, 5%, 10%, 12%, respectively, over the 25 year time frame. For each of the questions below, begin with the original scenario presented in Table 12.5. a. Experiment with the return on the fifth asset. How low can the return go and still have the diversified portfolio earn a higher return than the single-asset portfolio? b. What happens to the value of the diversified portfolio if the first two investments are both a total loss? c. Suppose the single asset portfolio earns a return of 8 percent annually. How does the return of the single asset portfolio compare to that of the 5-asset portfolio? How does it compare if the single asset portfolio earns a 6 percent annual return? d. Assume that asset 1 of the diversified portfolio remains a total loss (-100% return) and asset two earns no return. Make a table showing how sensitive the portfolio returns are to a 1 percentage point change in the return of each of the other three assets. That is, how is the diversified portfolio’s value affected if the return on asset 3 is 4 percent and 6 percent? If the return on asset 4 is 9 percent or 11 percent? If the return on asset 5 is 11 percent? 13 percent? How does the total portfolio value change if each of the three asset’s returns are 1 percentage point lower than in Table 12.5? If they are one percentage point higher? e. Using the sensitivity analysis of parts c and d, explain how the two portfolios differ in their sensitivity to different returns on their assets. What are the implications of this for choosing between a single asset portfolio and a diversified portfolio?
> This problem uses the financial statements for the Genatron Manufacturing Corporation for the years 2017 and 2016 from Problem 6. a. Calculate Genatron’s dollar amount of net working capital in each year. b. Calculate the current ratio and the acid-test
> Financial statements for the Genatron Manufacturing Corporation for 2017 and 2016 are shown in the text. a. Apply Du Pont analysis to both the 2017 and 2016 financial statements’ data. b. Explain how financial performance differed between 2017 and 2016.
> 1. What is the price of loanable funds in financial markets called? a. Interest rate b. Disequilibrium interest rate c. Supply of loanable funds d. Demand for loanable funds 2. Which of the following time periods was associated with decreasing/low
> Selected financial data in thousands of dollars for the Hunter Corporation are listed in the text. a. Calculate Hunter’s rate of return on total assets in 2017 and in 2016. Did the ratio improve or worsen? b. Diagram the expanded Du Pont system for Hunte
> Next year, Allgreens expects its sales to reach $33,000 with an investment in total assets of $10,750. Net income of $1,225 is anticipated. This year, sales were $30,000, total assets were $9,900, and net income was $1,000. Last year, these figures were
> The Dayco Manufacturing Company had the following financial statement results for last year. Net sales were $1.2 million with net income of $90,000. Total assets at year end amounted to $900,000. a. Calculate Dayco’s asset turnover ratio and its profit m
> Using your estimate for the degree of operating leverage for Genatron in 2017, estimate the level of operating income if the following year’s sales a) rise by 5 percent; b) fall by 12 percent.
> Using the financial statements presented in problem 6, determine Genatron’s degree of operating leverage in each of the years presented. Assume the cost of goods sold and marketing expenses are variable costs and all other costs are fixed. Data from Pro
> Using your estimate for the degree of operating leverage for Global in 2017, estimate the level of operating income if the following year’s sales a) rise by 5 percent; b) fall by 12 percent.
> Using the financial statements presented in problem 12, determine Global Manufacturing’s degree of operating leverage in each of the years presented. Assume the cost of goods sold are variable costs and all other costs are fixed. Data from problem 12:
> Using Global Manufacturing’s financial statements in problem 12, estimate their external financing needs if 10-percent growth in sales is expected and the firm pays out half of its earnings as dividends. 1. Forecast the dollar amount of expected sales in
> Using the data in the chapter, estimate Walgreen’s external financing needs if a 20-percent growth rate is expected. 1. Forecast the dollar amount of the expected sales increase: 2. Determine the dollar amount of new asset investment necessary to support
> The Jackman Company had sales of $1,000,000 and net income of $50,000 last year. Sales are expected to increase by 20 percent next year. Selected year-end balance sheet items were: Current assets = $400,000; Fixed assets = $500,000; Total assets = $900,0
> 1. When were the “seeds” that culminated in the 2007-08 financial crisis sown? a. At the beginning of the 1970s b. During the 1980s c. In the early 1990s d. At the beginning of the decade of the 2000s 2. What was the personal savings rate during th
> The Robinson Company had a cost of goods sold of $1,000,000 in 2016 and $1,200,000 in 2017. a. Calculate the inventory turnover for each year. Comment on your findings. b. What would have been the amount of inventories in 2017 if the 2016 turnover ratio
> This problem uses the two years of financial statements data provided in Problem 6 for the Genatron Manufacturing Corporation. a. Calculate and compare each current assets account as a percentage of total assets for that year. b. Calculate and compare ea
> Graph the revenue and cost lines to estimate the break-even point for the following data. Compute the break-even point mathematically. a. price = $12.95; variable cost/unit = $6.89; fixed costs = $10,000 b. price = $23, 995; variable cost/unit = $16,545;
> Associated Containers Company is planning to manufacture and sell plastic pencil holders. Direct labor and raw materials will be $2.28 per unit. Fixed costs are $15,300 and the expected selling price is $3.49 per unit. a. Determine the break-even point (
> Evaluate the performance of Johnson and Johnson in comparison to its industry.
> Compute the financial ratios for Global Manufacturing’s industry. Using Global’s ratios from problem 12, graph the firm’s and industry ratios as we’ve done in this chapter. Analyze Global’s performance in comparison to its industry. Data from problem 12
> Compare the reasons for the changes in return on equity for Global Manufacturing and its industry.
> Following are the consolidated financial statements for Global Manufacturing’s industry. Use Du Pont analysis on the industry financial statements to determine why industry return on equity changed from year to year.
> Below are financial statements for Global Manufacturing. After computing the ratios we discussed in this chapter, discuss strong and weak points of Global’s performance.
> Using the information in Tables 14.1 and 14.2, compute the financial ratios we discussed in this chapter for Walgreens using the 2010 and 2009 data.
> 1. How have the purchases of houses in the United States traditionally been financed? a. Fixed-rate mortgage b. Adjustable-rate mortgage c. Subprime mortgage d. Mortgage-backed security 2. A home loan to a borrower with a relatively high creditwort
> Genatron wants to estimate what will happen to its income before interest and taxes if its net sales change from the 2017 level of $1,500,000. Refer to Genatron’s 2017 income statement, shown in Problem 6, where the income before interest and taxes is $2
> The Robinson Company has current assets and current liabilities for the two years listed in the text. a. Compare the current ratios between the two years. b. Compare the acid-test ratios between 2016 and 2017. Comment on your findings.
> Use a spreadsheet to construct a common-size balance sheet from the data in problem 2 and a common-size income statement from the data in problem 5. Data from problem 5: Use your knowledge of income statements to fill in the missing items. Data from p
> Use your knowledge of income statements and common-size statements to fill in the missing dollar amounts.
> Use the following information to construct an income statement. Cost of goods sold = $684,000; Gross profit = $546,000; General and administrative expense = $159,000; Selling and marketing expense = $134,000; Operating income = $228,000; Income before ta
> Use the following information to construct an income statement. Interest = $25,000; Sales = $950,000; Income tax rate = 25%; Selling and marketing expenses = $160,000; General and administrative expenses = $200,000; Gross profit = $550,000; Depreciation
> Use your knowledge of income statements to fill in the missing items.
> Use your knowledge of balance sheets and common-size statements to fill in the missing dollar amounts.
> Use your knowledge of balance sheets to fill in the amounts missing in the text.
> Use your knowledge of balance sheets to fill in the amounts missing in the text.
> 1. What are debt securities with maturities longer than one year and corporate stocks referred to as? a. Money market securities b. Mortgage market securities c. Capital market securities d. Derivative securities 2. What is the term for a loan back
> Using the financial statements in the text: a. Compute common-size financial statements. b. Compute year-to-year percentage changes in the various accounts. c. What insights about the firm can you obtain from this analysis?
> Compare and contrast the two common-size balance sheets below. Which one do you think may belong to a supermarket? To a jeweler?
> Compare and contrast the two common-size balance sheets below. Which one do you think may belong to an auto manufacturer? To a computer manufacturer?
> Using the financial statements below for the Global Manufacturing corporation, a. Compute common-size financial statements. b. Put together a statement of cash flows of the firm. Where did the firm invest funds during the year? How did it finance these
> Use the following income statement and balance sheet information to put together a statement of cash flows. 2017 Assets 2017 2016 Sales $1,230,000 Cash $25,000 $21,990 Cost of goods sold $684,000 Accounts receivable
> Use the “balance sheet equation” to determine owners’ equity if liabilities are $5 million and assets are $10 million.
> The countries of Stabilato and Variato have the following average returns and standard deviations for their stocks, bond, and short-term government securities. What range of returns should you expect to earn 95% of the time for each asset class if you in
> Find the real return, nominal after-tax return, and real after-tax return on the following: Stock Nominal Return Inflation Tax Rate X 13.5% 5% 15% Y 8.7% 4.7% 25% Z 5.2% 2.5% 28%
> Find the real return on the following investments: Stock Nominal Return Inflation A 10% 3% B 15% 8% C -5% 2%
> RCMP, Inc. shares rose 10 percent in value last year while the inflation rate was 3.5 percent. What was the real return on the stock? If an investor sold the stock after one year and paid taxes on the investment at a 15 percent tax rate what is the real
> 1. Which of the following factors influence the total amount of savings? a. Levels of income b. Economic expectations c. Cyclical influences d. Life stage of the individual saver or business firm e. All of the choices are correct. 2. Which of the
> What is the real, or after-inflation, return from each of the asset classes listed in Table 12.4?
> Recalling the definitions of risk premiums from chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?
> If the conditions in the future are expected to be like those in the past, what is the expected portfolio return and standard deviation in a portfolio comprised of a. 25% XOM and 75% MSFT? b. 50% XOM and 50% MSFT? c. 75% XOM and 25% MSFT?
> Based upon your answers to problem 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation? Data from problem 1: From the information listed in the text, compute the average annual return, the variance, standard d
> Spreadsheets are useful for computing statistics: averages, standard deviation, variance, and correlation are included as built-in functions. Below is recent monthly stock return data for ExxonMobil (XOM) and Microsoft (MSFT). Using a spreadsheet and its
> a) Tim’s portfolio contains two stocks, Lightco and Shineco. Last year his portfolio returned 14 percent. Lightco’s return as 5 percent and Shineco returned 20 percent. What are the weights of each in Tim’s portfolio? b) The following year Tim adds a thi
> Estimate the weights (wi) for assets in the three portfolios given the following information about the portfolio holdings:
> Below is annual stock return data on AAB Company and YYZ, Inc. Year AAB YYZ 2009 0% 5% 2010 5% 10% 2011 10% 15% 2012 15% 20% 2013 -10% -20% a. What is the average return, variance, and standard deviation for each stock? b. What is the expected portfo
> Below is annual stock return data on Hollenbeck Corp and Luzzi Edit, Inc. Year Hollenbeck Luzzi Edit 2010 10% -3% 2011 15% 0% 2012 -10% 15% 2013 5% 10% a. What is the average return, variance, and standard deviation for each stock? b. What is the expec
> 1. How is personal saving by individuals calculated? a. Personal income plus depreciation less personal outlays b. Personal income less personal current taxes less personal outlays c. Personal income less only personal outlays d. Personal income plus
> Using the data in Table 12.4, calculate and interpret the coefficient of variation for each asset class.
> Scenario analysis has many practical applications in addition to being used to forecast security returns. In this problem, scenario analysis is used to forecast an exchange rate. Jim Danday’s forecast for the Euro/dollar exchange rate depends upon what t
> Ima’s sister, Uma, has completed her own analysis of the economy and Wallnut’s stocks. Uma used recession, constant growth and inflation scenarios but with different probabilities and expected stock returns. Uma believes the probability of recession is q
> Ima is considering a purchase of Wallnut Company stock. Using the same scenarios and probabilities as in problem 10, she estimates Wallnut’s return is -5% in a recession, 20 percent in constant growth, and 10% in inflation. a) What is Ima’s expected ret
> Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent change of continued steady growth, and a 30 percent probability of inflationary growth. For each possibility, Ima has deve
> From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
> A U.S. firm wants to raise $10 million of capital so it can invest in new technology. How much will it need to raise in order to net $10 million, using the average costs of raising funds in the chapter?
> The Quad Index is comprised of four stocks, Uno, Dos, Tres, and Fore. a) Given the data below on the number of shares outstanding and their share prices at time t and time t+1, what is the percentage change in the Quad Index if it is calculated as a pri
> The four stocks listed in the text are part of an index. Using the prior information, a. Compute a price-weighted index by adding the stocks’ prices at time t and time t + 1. What is the percentage change in the index? b. Compute a va
> The Trio Index is comprised of three stocks, Eins, Zwei, and Tri. Their current prices are as follows: a) Between now and the next time period, the stock prices of Eins and Zwei increase 10 percent while Tri increases 20 percent. What is the percentage c
> 1. What is the federal government’s largest annual source of revenues or income is from a. Social Security and other retirement taxes b. Personal income taxes c. Borrowing to cover the deficit d. Corporate income taxes 2. The federal government spen
> Currently the price of Mattco stock is $30 a share. You have $30,000 of your own funds to invest. Using the maximum margin allowed, what is your percentage profit or loss under the following situations (ignore dividends and taxes)? What would the percent
> You purchased shares of Broussard Company using 50 percent margin; you invested a total of $20,000 (buying 1,000 shares of a price of $20 per share) by using $10,000 of your own funds and borrowing $10,000. Determine your percentage profit or loss under
> Which of the following securities is likely to be the most liquid according to this data? Stock Bid Ask R $39.43 $39.55 S 13.67 13.77 T 116.02 116.25
> In late 2009, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $4
> Adjust the spreadsheet and its calculations in problem 13 for one more complication: have the length of the holding period (in quarters) be one of the spreadsheet’s inputs. Compute the annualized return if the holding period for Mattco stock were a) 3 mo
> Expand the spreadsheet of problem 13 to consider one extra source of return and one extra cost to using margin. Specifically, modify the spreadsheet to include expected dividends per share and the cost of the margin loan (stated in APR format). Assume th
> Develop a spreadsheet to do the dollar amount and percentage profit and loss calculations in questions 4 and 5. Use as inputs to the spreadsheet the amount of your funds you are investing, the initial margin percentage, the maintenance margin percentage,
> Boneyard Biscuits Dutch auction for an IPO was a great success. The firm offered 100 million shares. Bids appear next. a) What is the clearing price? b) What options do Boneyard and its underwriters have for allocating shares? How many shares will each
> Below are the results of a Dutch auction for an IPO of Bagel’s Bagels, a trendy bagel and coffee shop chain. Bagel’s is offering 50 million shares. a) What will be the clearing price? b) How many shares will each bidder receive if Bagel’s allocates share
> A U.S. firm wants to raise $15 million by selling 1 million shares at a net price of $15. We know that some say that firms “leave money on the table” because of the phenomenon of underpricing. a. Using the average amount of underpricing in U.S. IPOs, how
> 1. Which of the following are major components of the gross domestic product? a. Personal consumption expenditures b. Government expenditures including gross investment c. Gross private domestic investment d. Net exports of goods and services e. All
> You are the president and chief executive officer of a family-owned manufacturing firm with assets of $45 million. The company articles of incorporation and state laws place no restrictions on the sale of stock to outsiders. An unexpected opportunity to
> Billon Corporation has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bo
> Kamins Corporation has two bond issues outstanding, each with a par value of $1,000. Information about each is listed below. Suppose market interest rates rise 1 percentage point across the yield curve. What will be the change in price for each of the bo
> Judith, Inc. bonds mature in 8 years and pay a semi-annual coupon of $55. The bond’s par value is $1,000. a. What is their current price if the market interest rate for bonds of similar quality is 9.2%? b. A change in Fed policy increases market interest
> The Garcia Company’s bonds have a face value of $1,000, will mature in 10 years, and carry a coupon rate of 16 percent. Assume interest payments are made semiannually. a. Determine the present value of the bond’s cash flows if the required rate of return
> a. By how much would the value of the bond in Problem 4 change if investors wanted an 8-percent rate of return? b. A bond with the same par value and coupon rate as the bond in Problem 4 has 14 years until maturity. If investors will use a 10 percent dis
> Assume a $1,000 face value bond has a coupon rate of 8.5 percent paid semiannually and has an eight-year life. If investors are willing to accept a 10 percent rate of return on bonds of similar quality, what is the present value or worth of this bond?
> A firm’s dividends are expected to grow 20 percent a year for the next five years and then trend downward by 3 percent a year until they stabilize at a constant growth rate of 5 percent. The current dividend is $0.80 a share and the stock’s required rate
> JW Corp has a dividend of $0.50. The dividend is expected to grow at a 6% rate over time. Based on the stock’s risk, investors require an 11-percent rate of return. a. Using the constant dividend growth model, what should the stock’s price be? b. Estima
> Tough times have hit the retail store chain of Brador, Inc. Analysts expect its dividend of $1.00 a share to fall by 50 percent next year and another 50 percent the following year before it returns to its normal growth pattern of 3 percent a year. If inv
> 1. A forward rate can be used to do which of the following? a. Mitigate currency exchange rate risk b. Reduce currency exchange rate risk c. Try to profit from expected currency exchange rate changes d. All of the choices are correct 2. Which of th
> 1. Who are the major participants in the U.S. monetary system? a. Central bank b. Banking system that creates deposit money and transfers money c. Banking system that provides financial intermediation and processes/clears checks d. All of the choices
> Ritter Incorporated just paid a dividend of $2 per share. Its management team has just announced a technological breakthrough that is expected to result in a temporary increase in sales, profits, and common stock dividends. Analysts expect the firm’s per
> Using the regular Treasury note of problem 2; a) What is its price if investors’ required rate of return is 6 % on similar bonds? Treasury notes pay interest semiannually. b) Erron Corporation wants to issue five-year notes but investors require a credit
> Interpret the following stock price quote. In addition, what is Sizzler’s approximate earnings per share? What was the stock’s closing price the previous day?
> Lerman Company has preferred stock outstanding. It pays an annual dividend of $10. If its current price is $70, what is the discount rate investors are using to value the stock?
> The common stock of RMW Inc. is selling at $88 a share. It just paid a dividend of $4. Investors expect a return of 15 percent on their investment in RMW Inc. From this information, what is the expected growth rate of future dividends?
> Mercier Corporation’s stock is selling for $95. It has just paid a dividend of $5 a share. The expected growth rate in dividends is 8 percent. a. What is the required rate of return on this stock? b. Using your answer to Part a, suppose Mercier announces
> The French Thaler and Company’s stock has paid dividends of $1.60 over the past 12 months. Its historical growth rate of dividends has been 8 percent but analysts expect the growth to slow to 5 percent annually for the foreseeable future. a. Determine t
> The Lo Company earned $2.60 per share and paid a dividend of $1.30 per share in the year just ended. Earnings and dividends per share are expected to grow at a rate of 5 percent per year in the future. Determine the value of the stock: a. if the required
> The Joseph Company has a stock issue that pays a fixed dividend of $3.00 per share annually. Investors believe the nominal risk-free rate is 4 percent and that this stock should have a risk premium of 6 percent. What should be the value of this stock?
