Little Book LTD has total assets of $860,000. There are 75,000 shares of stock outstanding, total book value of $750,000 with a market value of $12 a share. The firm has a profit margin of 6.5% and a total asset turnover of 1.5.
- Calculate the company’s EPS?
- What is the market –to- book ratio?
Fifteen years ago, you deposited $12,500 into an investment fund. Five years ago, you added an additional $20,000 to that account. You earned 8%, compounded semi-annually, for the first ten years, and 6.5%, compounded annually, for the last five years.
- What is the effective annual interest rate (EAR) you would get for your investment in the first 10 years?
- How much money do you have in your account today?
- If you wish to have $85,000 now, how much should you have invested 15 years ago?
Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. The company requires a 12% return.
- Which project should the company select and why?
- Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year?
Rachel is a financial investor who actively buys and sells in the securities market. Now she has a portfolio of all blue chips, including: $13,500 of Share A, $7,600 of Share B, $14,700 of Share C, and $5,500 of Share D.
- Compute the weights of the assets in Rachel’s portfolio?
- If Rachel’s portfolio has provided her with returns of 9.7%, 12.4%, -5.5% and 17.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period.
- Assume that expected return of the stock A in Rachel’s portfolio is 13.6% this year. The risk premium on the stocks of the same industry are 4.8%, betas of these stocks is 1.5 and the inflation rate was 2.7%. Calculate the risk-free rate of return using Capital Market Asset Pricing Model (CAPM).
- Following is forecast for economic situation and Rachel’s portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio.
|State of economy||Probability||Rate of returns|
|Mild Recession||0.35||– 5%|
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