# Solution: 900,000/100,000 9:. 9 16 144
# Solution: 900,000/100,000 9:. 9 16 144
# Solution: 900,000/100,000 9:. 9 16 144
6. XYZ Corporation has sales of $5,000,000, net income of $900,000, total assets of $2,000,000,
and 100,000 shares of common stock outstanding. If XYZ’s P/E ratio is 16, what is the company's
current stock price?
C) $144 per share # Solution: 900,000/100,000=9 :. 9*16 = 144
7. A firm has total assets of $5,000,000 and has raised money from both debt and equity.
Assume that the firm’s cost of capital is 12%. Assume that the firm earns 17% operating return
on its assets (OROA) and its operating profit margin (OPM) is 20%. What is the amount of
Economic Value Added for this firm?
A. $250,000
8. Davies Inc.’s current market price is $32/share. Its owners’ equity = $203 million, and there
are 20 million shares outstanding. What is Davies’s P/B ratio?
A. 3.15 # Solution: 203/20 = 10.15 :. 32/10.15 = 3.15
9. We deposit $100,000 in the bank at 5% interest, compounded monthly. After 10 years, how
much can we withdraw from the bank account?
B. $164,701
10. Suppose you need $100,000 in 10 years. If you can earn 8% per year, how much do you have
to invest today so that you have the $100,000 in 10 years?
A. $46,319
11. Based on the information in Table 4-1, the fixed asset turnover ratio is
C) 1.69.
12. Based on the information in Table 4-1, the average collection period is
B) 32.85 days.
13. If we have $150 today and can invest for 13 years, what interest rate do we need to have in
order to have $400 at the end?
B. 7.84%
14. If we want to have $300,000 after 13 years. How much do you need to pay at the beginning
of each month for the next 13 years with 5% as interest?
C. $1,363.5
15. You want to buy a house worth $300,000. The rest will be financed at 4% annually. Your
payments will be made at the end of every month for 30 years. What is your monthly payment?
B. $1432.25
16. If we have $150 today and can invest at 5% per year, how many months (monthly
compounding) do we need to invest in order to have $250 in the bank at the end?
C. 122.9
17. You decide you want to be a millionaire. You deposit $50,000 for one time in an investment
account that earns 8% per year. The money in the account will be distributed to you whenever
the total reaches $1,000,000. If you are 27 now, how old will you be when you get the money
(rounded to the nearest year)? (Hint: to know how old you will be, you need to know for how
long your money should be invested)
D.66 years
18. John Box Inc. has an annual interest expense of $30,000 and pays income tax equal to 40
percent of taxable income (EBT). John Box's times-interest-earned (TIE) ratio is 4.2. What is John
Box's net income?
D) $57,600
19. At 6 percent compounded monthly, how long will it take to triple your money?
A) 221 months # Solution: 6*12*3 = 216
20. You graduate from UNT and find a good paying job. You decide that you want to buy a
house. There is a house you like which is selling for $150,000 now. Suppose you make 20%
down payment and you qualify for a 3% APR, 30-year mortgage paid at the end of each month.
How much would be your monthly payment that begins at the end of current month (rounded
to the nearest dollar)?
B) $506
HWK 3
2. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 8%. The CFO is
going to the bank to discuss a large loan. The banker asks what range of returns, with a 95%
confidence level, will contain Snacks true expected returns next year.
a. (-1%, 31%)
3. Vaughn Corporation common stock has a required return of 17.5% and a beta of 1.75. If the
expected risk-free return is 3%, what is the expected return for the market based on the CAPM?
a. 11.29%
5. Assume that you have $100,000 invested in a stock with a Beta of 0.85, $100,000 invested in
a stock with a Beta of 1.05, and $300,000 invested in a stock with a Beta of 1.25. What is the
beta of your portfolio (rounded to the nearest hundredth)?
D. 1.13
6. Stock W's expected rate of return is
a. 3.5%
7. Using the information from question 6, what is Stock W’s standard deviation of returns?
a. 9.76%
9. Messenger, Inc. bonds have a 6% coupon rate with semiannual coupon payments and a
$1,000 par value. The bonds have 11 years until maturity, and sell for $925. What is the
CURRENT YIELD for Messinger’s bonds?
d. 6.49%
11. GM corporate Bond is currently priced at $1,200, the maturity is 20 years, and it pays a 14%
coupon. The bond can be called in 5 years (it has 5 years of call protection). What is YIELD TO
CALL (YTC) if GM decides to call the bond after 5 years at a premium of $1,100?
A) 10.35%
12. Assume that you had bought a convertible bond with a conversion ratio of 25. Now the
stock of this firm is selling for $45. Will you execute this option of conversion? If so, what is the
profit do you get when you convert the bond into stocks and sell it in the stock market?
D) Executed, and the profit is 125
14. Assume that Bunch Inc. has an issue of 10-year $1,000 par value bonds. The coupon rate is
7%, and Yield to Maturity is 6%. How much would these bonds sell for today? (Note: By default,
bond is priced semiannually.)
C) $1,074.39
16. You want to buy a house worth $300,000. The rest will be financed at 4% annually. Your
payments will be made at the end of every month for 30 years. What is your monthly payment?
B. $1432.25
17. Let’s say that we have a 20 year mortgage with an original loan balance of $150,000 at 7%
interest per year. How much interest do you pay in the 4th year of the loan? (The loan is
compounded monthly)
C. $9,555.78
Midterm Exam 2
4. Snacks Inc. has a mean expected return of 15%, with a standard deviation of 3%. The CFO is
going to the bank to discuss a large loan. The banker asks what range of returns, with a 95%
confidence level, will contain Snacks true expected returns next year. # Solution: 15%+(2*3%)=
.21
c. (9%, 21%) # Solution: 15%-(2*3%)= .9
5. Stock W's expected rate of return is
C. 2.0% # Solution: X(avg)= (30*(-15)+40*(5)+30*15)/100 = 2%
6. Using the information from above, what is Stock W’s standard deviation of returns?
c. 11.87% # Solution: SD= ((30*(-15-2)^2+40*(5-2)^2+30(15-2)^2)/100)^0.5
7. You charged $1,000 on your credit card for Christmas presents. Your credit card company
charges you 26% annual interest, compounded monthly. If you make the minimum payments of
$25 per month, how long (in years) will it take to pay off your balance?
C. 7.83 years
8. XYZ Corporation has sales of $5,000,000, net income of $700,000, total assets of $2,000,000,
and 100,000 shares of common stock outstanding. If XYZ’s P/E ratio is 16, what is the company's
current stock price?
D) $112 per share # Solution: (700,0000/100,000) *16 = 112
10. Based on the information in Table 4-1, the times interest earned ratio is _______
A) 23.75 times. # Solution: (EBT+Interest Expenses)/Interest Expenses
11. Based on the information in Table 4-1, the days in inventory are _______
D) 182.5 days.
13. Apollo Corp. reported the following balance sheet:
Apollo Corp.'s debt ratio is ______
B) 37.62%. # Solution: (Account payable+ Note Payable+ Accruals+ Long-term debit)/Total
assets
14. A firm has total assets of $20,000,000 and has raised money from both debt and equity.
Assume that the firm’s cost of capital is 12%. Assume that the firm earns 17% operating return
on its assets (OROA) and its operating profit margin (OPM) is 20%. What is the amount of
Economic Value Added for this firm?
A. $1,000,000 # Solution: 20,000,000 17% = 3,400,000 :. 3,400,000 – (20,000,000*12%) =
1,000,000
15. You borrow $50,000 to be repaid in 24 installments of $2,424.33 at the end of each month.
The ANNUAL interest rate is closest to
C. 15.00 percent
16. If we have $150 today and can invest at 5% per year, how many months (monthly
compounding) do we need to invest in order to have $240 in the bank at the end?
B. 113.0
17. Let’s say that we have a 20 year mortgage with an original loan balance of $150,000 at 7%
interest per year. How much interest do you pay in the 3rd year of the loan? (The loan is
compounded monthly)
B. $9,852.36
18. At 6 percent compounded monthly, how long will it take to quadruple your money?
C) 278 months
19.What is the Net Present Value (NPV) now on the following cash flows:
Use a 4% discount rate, and round your answer to the nearest $1.
A. $176,775
20. I need your help! I have $15,000 that I can deposit in the Bank of Pandora and earn 4%
interest rate compounded semi-annually or in the Bank of Titanic and earn 4% interest rate
compounded continuously. If I can keep the deposit for 5 years, where should I deposit? By how
much is this amount higher than if I deposited in the other bank?
B) Bank of Titanic, $36
22. You graduate from UNT and find a good paying job. You decide that you want to buy a
house. There is a house you like which is selling for $350,000 now. Suppose you make 20%
down payment and you qualify for a 3% APR, 30-year mortgage paid at the end of each month.
How much would be your monthly payment that begins at the end of current month (rounded
to the nearest dollar)?
B) $1,181
23. To compound $100 quarterly for 20 years at 8%, we must use
C. 80 periods at 2% # Solution: 20*4 =80 # Solution: 8/4=2
25. PBJ Corporation bond has a coupon rate of 5.5%, with coupon paid semiannually. The face
value of the bonds is $1,000 and the bond has a maturity of 9 years. What is the YIELD TO
MATURITY for a PBJ Corporation bond if the market price of the bond is $950?
C) 6.23%
26. Assume that Bunch Inc. has an issue of 18-year $1,000 par value bonds with 7% of annual
coupon rate. The coupon is paid semi-annually. Further assume that today's Yield to Maturity
(YTM) on these bonds is 5%. How much would these bonds sell for today?
D) $1,235.56 Or 1,233.79 # Solution: 7%*1000 =70 :. 70*(1-(1+0.05) ^-18/0.05) +1000/
(1+0.05) ^18= 1233.79
28. The risk-free rate of interest is 4% and the market return is 13%. Howard Corporation has a
beta of 2.0. The required return on Howard Corporation stock is
D) 22%.