2-4) Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million.  It had $ 2.0 million of interest expense, and its corporate tax rate was 40%.  What was its charge for depreciation and amortization? 

3-11)  Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:                                                                                                                                   Total assets turnover: 1.5                                                                                                                                                      Gross profit margin on sales: (sales – Cost of goods sold) / Sales = 25%                                                                           Total liabilities-to-assets ratio: 40%                                                                                                                                       Quick ratio: 0.80                                                                                                                                                                     Days sales outstanding (based on 365-day year): 36.5 days                                                                                        Inventory turnover ratio:  3.75

Partial Income                Statement information 

Sales                                              ?

Cost of goods Sold                      ?

Balance Income

Cash                                              ?                           Accounts Payable                    ?

Accounts receivable                  ?                            Long-term debt                   $50,000

Inventories                                 ?                            Common Stock                       ?

Fixed assets                                ?                             Retained earnings                  ?

Total assets                         $400,000                      Total Liabilities and equity    ???

4-8)  You want to buy a car, and a local bank will lend you $20,000.  The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly.  What is the monthly loan payment?  What is the loan’s EFF%? 

5-9) The Garraty Company has two bond issues outstanding.  Both bonds pay $100 annual interest plus $1000 at maturity.  Bond 1, has a maturity of 15 years, and Bond S has a maturity of 1 year.

a) What will the value be of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, (3) 12%?  Assume that there is only one more interest payment to be made on Bond S. 

b) Why does the longer-term (15 year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)? 

6-6)The market and Stock J have the following probability distributions:

Probability                                       Rm                                  Rj

0.3                                                    15%                                 20%

0.4                                                       9                                     5

0.3                                                      18                                  12

a)  Calculate the expected rates of return for the market and Stock J.

b) Calculate the standard deviations for the market and Stock J.

6-8)As an equity analyst you are concerned with what will happen to the required return to Universal Toddle Industries’s stock as market conditions change.  Suppose rrf = 5%, rm = 12 % and B UTI = 1.4

a. Under current conditions, what is r uti, the required rate of return on UTI stock? 

b. Now suppose rrf (1) increases to 6% or (2) decreases to 4%.  The slope of the SML remains constant.  How would this affect rm and r uti?

c. Now assume rrf remains at 5% but rm (1) increases to 14% or (2) falls to 11%.  The slope of the SML does not remain constant.  How would these changes affect R uti?

7-17) Kendra Enterprises has never paid a dividend.  Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%.  The company’s weighted average cost of capital is 12%. 

a. What is the terminal, or horizon, value of operations?  (Hint: find the value of all free cash flows beyond year 2 discounted back to year 2).

b. Calculate the value of Kendra’s operations.

8-3)Assume that you have been given the following information on Purcell Industries:

       Current stock price = $ 15                                   Strike price of option = $15

       Time to maturity of option = 6 months                  Risk-free rate = 6%

       Variance of stock return = 0.12                 

       d1 = 0.24495                                                                N(d1) = 0.59675

       d2 = 0.00000                                                                N(d2) = 0.50000

According to the Black-Scholes option pricing model, what is the option’s values? 

9-7) Shi Importers’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity.  Shi’s tax rate is 40%, rd = 6%, rps = 5.8%, and rs = 12%.  If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC?    

9-11)  RadonHomes’s current EPS is $6.50.  It was $4.42, 5 years ago.  The company pays out 40% of its earnings as dividends, and the stock sells for $36.00. 

a) Calculate the historical growth rate in earnings.  (hint: this is a 5-year growth period). 

b) Calculate the next expected dividend per share, D1.  (hint: D0 = 0.4($6.50 = $2.60).  Assume that the past growth rate will continue. 

c) What is Radon’s cost of equity, rs?

12-2)  Refer to problem 12-1.  What would be the additional funds needed if the company’s year end 2013 assets had been $7 million?  Assume that all other numbers, including sales, are the same as in Problem 12-1 and that the company is operating at full capacity.  Why is the AFN different from the one you found in Problem 12-1?  Is the company’s “capital intensity” ratio the same or different?

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