22. A broker is considering buying a dividend-paying stock. The dividend will be paid at the end of the year. The analyst consensus is the stock will be worth $36 in one year. The company pays a $2.25 annual dividend (ex-dividend date is not a consideration, the broker will receive the full $2.250, and the broker expects a 12% rate of return.

What is the highest price the broker should be willing to pay for the stock?

49. A company is preparing a PRO FORMA balance sheet. The company forecast $10 million in projected sales. The projected cash needed is 6% of sales, accounts receivable are 19% of sales, and PP&E are 50% of sales. Accounts payable has been 12% of sales, historically. Total shareholders’ equity is $6.3 million. The company has no long-term debt.

What is the total discretionary amount for the PRO FORMA balance sheet?

23. A person buys shares of a company at $45. They recently paid a $2 annual dividend which is expected to grow by 10% per year.

What is the expected return per year?

25. The market rate of return is 9%. The face value of the bond is $100, the coupon rate is 9% with annual compounding, and the bond matures in 10 years.

What is the value of the bond?

27. A company issues bonds at a market price of $925. The face value is $1000. The bonds mature in 10 years, and the coupon rate is 6% compounded semiannually.

What is the yield to maturity (YTM) on the company’s bonds?

29. A bond pays $27.50 semiannually, matures in 9 years, and is currently priced at $1090.

What is the yield to maturity for this bond?

14. A company’s year-end balance sheet for 2013 shows the following:

Accounts receivable: $900

Inventory: $1200

 Fixed assets:  $1000   

Accounts payable: $1300    

Sales: $4000

 Salaries: $275

 What is their fixed asset turnover ratio?

17. A teacher won $100,000 and invests this money for 5 years at an interest rate of 4% (compounded annually).

How much will the teacher have in principal and interest at the end of the 5 years?

18. An accountant is 40 years old with an anticipated retirement age of 70 years old. The accountant plans to save $6000 per year at the end of the next 30 years to fund retirement.

How much will the accountant have upon retirement, if the accountant is able to earn 4% annually on this investment?

19. An investor deposits $2,000 per year (beginning today) for 10 years in a 4% interest bearing account. The last cash flow is received 1 year prior to the end of the tenth year.

What is the investor’s future balance after 10 year?

42. A company would like to invest in a CAPITAL BUDGET project that will be worth $500,000 in 40 years.

How much should the company invest today, assuming an average inflation rate of 2% and a 10% annual return?

37. A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt 6%, a cost of preferred equity 8%, and a marginal tax rate of 34%. The current market value of the company is $150 million, with $75 million common equity, $50 million debt, and $25 million preferred equity.

What is the company’s Weight average pre-tax cost of capital? (WACC)

43. A company has a market value of $500 million.

It has a market value of equity of $250 million, a market value of long term debt of $150 million, and a market value of short term debt of $150 million.

 The cost of equity is 12%, the cost of long-term debt is 8%, and the cost of short term debt is 6%. The marginal tax rate is 35%.

What is the Weight average pre-tax cost of capital (WACC) for this company?

47. Year 2010 ending retained earnings were $2,000,000. Year 2011 forecasted sales are $100,000 with a 25% net margin and 20% dividend payout ratio.

What are the forecasted retained earnings for year 2011?

46. A corporation established its projected sales at $210 million. It is using its current year balance sheet as a basis for creating a PRO FORMA balance sheet. They estimate cash will be 7% of projected sales, accounts receivable will be 19% of projected sales, and PP&E will be 55% of projected sales. Accounts payable are estimated to be 12% of projected sales. Owners’ equity is $34 million. Long term debt is $90 million. Additionally, the firm raised $12.9 million of equity capital.

What is the amount of discretionary financing needed?

39. Partial financial data for a company is as follows:

Assets: $10,000,000

Liabilities: $4,000,000

Equity: $6,000,000

Sales: $25, 000,000

Net Income: $5,000,000

Profit margin: 20%

Dividend: $5000, 000

Dividend payout ratio: 10%

ROA: 50%

ROE: 83%

What is the sustainable growth rate for the company?