# A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is _________. a. 15.12% b. 40.6% c. 37.24% d. 28.42% has an ROE of 20% and a market-to-book ratio of 2.38. Based on this information, Citadel’s P/E ratio is _________. a. 47.6 b. 8.4 c. 17.62 d. 11.9 Total sales 202 212 54 40 Selling, general, and administrative expenses -22 -20 Research and development -8 -7 Depreciation and amortization -4 -3 24 16 14 12 10 9 All values are in millions of dollars. If XTC Industries has 25 million shares outstanding, what is its EPS in 2016? a. $0.36 b. $0.40 c. $0.84 d. $0.63 A firm’s measures the difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by the firm in a given period. True False The firm’s statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period. True False An underpriced stock provides an expected return that is ____________ the required return based on the capital asset pricing model (CAPM). a. equal to b. greater than or equal to c. greater than d. less than The intrinsic value of a stock is equal to the present value (PV) of both the dividends MINUS the future (or expected)sale price of that stock which the investor will receive. True False The only cash payment that investors in a zero-coupon bond receives is the par value of the bond on its maturity date. True False The price of a bond (with par value of $1,000) at the beginning of a period is $980 and at the end of the period is $975. is the holding-period return if the annual coupon rate is 4.5%? a. 5.6% b. 4.5 c. 5.1% d. 4.08% common stock pays an annual dividend per share of $1.80. The risk-free rate of return is 5%, and the risk premium for the company’s common stock is 4%. The firm’s annual dividend is expected to remain at $1.80 per share. Based on this information, what is the value of the stock? a. $17.78 b. None of these options c. $40 d. $20 The yield to maturity of a 10-year zero-coupon bond with a par value of $1,000 and a market price of $625 is _____. a. 4.8% b. 10.4% c. 7.7% d. 6.1% · Question of Firm X acquires firmZ when firm Z has a book value of assets of $155 million and a book value of liabilities of $35 million. Firm X actually pays $175 million for firm Z. This purchase would result in goodwill for firm Xequal to _____. a. $175 million b. $155 million c. $120 million d. $55 million · Question of GHI Industries will pay a dividend of $1.80 per share this year. This dividend is expected grow by 4% per year each year in the future. The current price of GHI’s stock is $22.40 per share. Based on this information, what is the firm’s cost of equity capital? Notes: – Do not use the % sign. – Use 1 decimal space to round your answer. For example, 6.28123% should be entered as 6.3 · Question of · New Century Shipping issued a coupon bond that pays interest of $60 annually. The bond has a par face value of $1,000, and matures in 5 years. It is selling today at a $75.25 discount from par value. · Based on this information, what is the current yield on this bond? a. 7% b. 6% c. 6.49% d. 6.73% · · is expected to produce earnings next year of $3 per share. The firm plans to reinvest 25% of its earnings at 20%. Assuming that the firm’s cost of equity is 11%, the value (per share) of the stock should be? a. $37.50 b. $27.27 c. $66.67 d. $70 · Question of · Moving to the next question prevents changes to this answer. GMT Resources, Ltd. is expected to generate earnings per share (EPS) of $3 this year. Investors expect the firm to pay out $1.50 of these earnings to shareholders in the form of a dividend. GMT’s expected return on new capital investment projects is 15% and the firm’s equity cost of capital is 12%. Based on this information, what is the (estimated) value (per share) of the firm’s common stock? · Do not use the $ to enter your answer. · Round using 2 decimal spaces. For example, $12.28231 should be entered as 12.28 · Question of · Moving to the next question prevents changes to this answer. You buy an 8-year $1,000 par value, Retail Ventures REIT bond today. The bond has a 6% yield and a 6% annual payment coupon. In 1 year promised yields have increased to 7%. Your 1-year holding-period return was ___. a. 1.28% b. 0.61% c. -3.25% d. -5.39% The preferred stock of TRN Railways, Inc. will pay a dividend of $8 in the upcoming year and every year thereafter. The firm’s dividends are not expected to grow. If the investor’s required rate of return is 7%, what is the stock’s intrinsic value? a. $114.29 b. $91 c. $45.50 d. $13.50 For the dividend-discount model (DDM) equation to be viable, the should be smaller than the because it does not have any economic intuition if the growth rate is equal or greater than the cost of equity. True False From a valuation perspective, a successful firm will have a ratio that is substantially greater than 1.0. True False is expected to pay a dividend of $3 in the upcoming year. The firm’s dividends are expected to grow at a constant rate of 10% per year forever. The expected return on the market portfolio is 13%, and the risk-free rate of return is 4%. The company’s common stock has a beta coefficient of 0.40. According to the Constant-Growth DDM, the intrinsic value of the stock is _________. a. $10 b. $27.78 c. $41.67 d. $22.73 A firm increases its dividend plowback ratio. All else equal, you know that _____________. a. earnings growth will increase and the stock’s P/E will decrease b. earnings growth will increase and the stock’s P/E will increase c. earnings growth will decrease and the stock’s P/E will increase d. earnings growth will increase and the stock’s P/E may or may not increase · Question of · Moving to the next question prevents changes to this answer. An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. is the current yield on this bond? a. 3.5% b. 9.6% c. 4.85% d. 9.7% Heartland Energy Shares, Inc. issues a coupon bond that pays interest semiannually. The bond has a face value of $1,000, a coupon rate of 7%, and it matures in 8 years, and has a yield to maturity of 6%. Based on this information, what is the the intrinsic value of the bond today? a. $1,062.81 b. $1,000 c. $1,081.82 d. $1,100.03 The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. True False CVML, Inc. will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year for the next five (5) years. After that, the company’s dividends are expected to grow at a constant (annual) rate of 2% forever. If the company’s cost of equity capital is 8%, the value of a share of CVML’s stock is closest to: a. $11.83 b. $15.00 c. $17.40 d. $3.24 A firm can either pay its earnings out to its investors in the form of dividend distibutions or it can retain them for reinvestment. True False . has a total debt of $140 million and stockholders’ equity of $50 million. The company has 25 million shares outstanding, which are currently trading at market price of $3.50 per share. Based on this information, what is the firm’s ? 1. 1.02 2. 0.63 3. 1.60 4. 0.36 A __________ bond gives the issuer an option to retire the bond before maturity at a specific price after a specific date. a. coupon b. puttable c. callable d. Treasury , paid a $4 dividend per share last year. The firm is expected to continue to pay out 60% of its earnings as dividends for the foreseeable future. The firm is expected to generate a 13% return on equity in the future. Assuming that the investor’s required rate of return is 15%, what is the the of the stock? a. $59.89 b. $26.67 c. $35.19 d. $42.94 A debenture is _________. a. unsecured b. secured by property owned by the firm c. secured by other securities held by the firm d. secured by equipment owned by the firm · Question of · Moving to the next question prevents changes to this answer. A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of __________ today. a. $641.11 b. $458.11 c. $789.11 d. $1,100.11 Total sales 610.1 578.3 Cost of sales (500.2) (481.9) Gross profit 109.9 96.4 Selling, general, and administrative expenses (40.5) (39.0) Research and development (24.6) (22.8) Depreciation and amortization (3.6) (3.3) Operating income 41.2 31.3 Other income — — Earnings before interest and taxes (EBIT) 41.2 31.3 Interest income (expense) (25.1) (15.8) Pretax income 16.1 15.5 Taxes (5.5) (5.3) Net income 10.6 10.2 Price per share $16 $15 Shares outstanding (millions) 10.2 8.0 Stock options outstanding (millions) 0.3 0.2 Stockholders’ Equity 126.6 63.6 Total Liabilities and Stockholders’ Equity 533.1 386.7 Refer to the income statement above. Based on this information, LTL’s return on equity (ROE) for the year ending December 31, 2016 is_________? Note: Do not use the % sign; use one decimal space to round your answer. For example, 12.4296% should be entered as 12.4 · Question of · . is expected to pay a dividend of $4 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The company’s common stock has a beta coefficient of 0.50. · According to the CAPM, the stock’s required (or expected) return should be _________. a. 2% b. 9% c. 5% d. 8% Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.0 12.0 Total current assets 171.0 144.0 Total current liabilities 144.0 132.0 Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations — — Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities — — Goodwill 60.0 — Total long-term liabilities 262.5 191.1 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Stockholders’ Equity 126.6 63.6 Refer to the Balance Sheet for TRL Ventures, Inc. above. (All figures are in $ millions). In 2016 the company has 10.2 million shares outstanding and these shares are trading at $16 per share. Based on this information, what is the firm’s ? · Do not use the $ sign. · Use one decimal space to enter your answer. For example, $75,920,000 should be entered s 75.9 · Question of · The of OMD Industries, Inc. shows the following: · Assets: $70 million · Liabilities: $45 million · Common Equity: $25 million · Shares Outstanding: 1 million · The replacement cost of the firm’s Assets is $85 million, and its market price per share is $49. · Based on this information, the firm’s book value per share is _________. a. $16.67 b. $37.50 c. $40.83 d. $25.00 Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years, while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, _________. a. both bonds will decrease in value but bond A will decrease more than bond B b. both bonds will increase in value but bond A will increase more than bond B c. both bonds will decrease in value but bond B will decrease more than bond A d. both bonds will increase in value but bond B will increase more than bond A The __________ of a bond is computed as the ratio of the annual coupon payment to the market price. a. yield to call b. current yield c. yield to maturity d. nominal yield According to the Gordon Constant Growth DDM, the of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate True False issues aA coupon bond that pays interest annually. The bond has a par value of $1,000, matures in 5 years, and has a yield to maturity of 12%. If the bond offers a coupon rate of 9%, its intrinsic value today is _________. a. $926.47 b. $1,000 c. $856.04 d. $891.86 issues a coupon bond that pays interest of $60 annually has a face value of $1,000. The bond matures in 5 years, and is selling today at an $84.52 discount from par value. Based on this information, what is the on this bond? a. 9.45% b. 7.23% c. 6% d. 8.12% VNZ Corporation will pay a dividend of $1.80 per share at this year’s end and a dividend of $2.40 per share at the end of next year. Investors believe (or expect) that after 2 years the company’s stock will have a price of $44 per share. If the firm’s cost of equity capital is 8%, what is the maximum price that a rational, risk-averse, investor would be willing to pay for the company’s stock today? · Do not use the $ sign. · Round your answer using 2 decimal spaces. For example, $17.75231 should be entered as 17.75 · Question of · Moving to the next question prevents changes to this answer. · The balance sheet presents a firm’s assets, liabilities, and stockholders’ equity of a firm over a given length of time. · True · False