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Date Posted: 15:31:00 07/04/00 Tue
Author: Shannon Turner
Subject: Re: Another sample Mid-term from Hodges
In reply to: Karen Gilmore 's message, "Re: Another sample Mid-term from Hodges" on 12:45:36 07/04/00 Tue

After comparing my answers to the sample submitted by Karen, I have questions on the following: (I'VE MADE NOTES IN CAPITAL LETTERS)

PLEASE EXPAND MORE ON THIS TOPIC
> > 2. List two reasons why profit maximization may not
> > lead to shareholder wealth maximization.
> >
> > A decision to increase short term profits such as
> reducing labor cost and decreasing operating
> purchases. In the long run, the firm will probably
> lose business & stock price will fall.
> >
> >
DIFFICULTY OF TX OWNERSHIP WAS A DISADVANTAGE WITH PARTNERSHIPS BUT NOT LISTED WITH SOLE PROP...I CHOSE "C" BUT ONLY AFTER LOOKING WORD FOR WORD IN THE BOOK. PLEASE CLARIFY
> > 3. Which of the following is not generally
> considered
> > a disadvantage of the sole proprietorship?
> > a. UNLIMITED LIABILITY.
> > b. LIMITED LIFE OF THE ORGANIZATION
> > c. DIFFICULTY OF TRANSFERRING OWNERSHIP
> > d. DIFFICULTY OF RAISING LARGE AMOUNTS OF CAPITAL.
> > e. ALL OF THE ABOVE ARE CONSIDERED TO BE
> > DISADVANTAGES.
> > E


TRICKY ON #18 & #19 - "THE PORTFOLIO'S STANDARD DEVIATION WILL BE SMALLER THAN THE WEIGHTED AVERAGE OF THE ASSETS' STD. DEV.'S" - PLEASE CLARIFY
> > 18. A portfolio's standard deviation is always less
> > than, or equal to, the standard deviations of the
> > individual security with the highest stand-alone
> risk.
> > a. True b. False
> > B
> > 19. A portfolio's standard deviation is always
> greater
> > than, or equal to, the standard deviations of the
> > individual security with the lowest stand-alone risk.
> > a. True b. False
> > B

I FIGURED 9 & 12% AFTER FIGURING IN THE LIQ & MRP FOR THE TREASURY BOND. SHOULD THE TREAS BOND INCLUDE MRP AND LIQ?
> > 21. You are given the following data:
> >
> > k* = real risk-free rate = 3%
> > Constant inflation premium = 6%
> > Maturity risk premium = 1%
> > Default risk premium for AAA bonds = 5%
> > Liquidity premium for long-term T-bonds = 2%
> >
> > Assume that a highly liquid market does not exist for
> > long-term T-bonds, and the expected rate of inflation
> > is a constant. Given these conditions, the nominal
> > risk-free rate for T-bills is _____, and the rate on
> > long-term Treasury bonds is _____.
> > 9% and 10%
> > 22. Use this information to answer the questions
> > below. Assume all sales are credit sales.
> >
> > Balance Sheet 12/31/96 12/31/97
> > Cash $ 315 $ 255
> > Accounts Receivable 275 275
> > Inventory 600 220
> > Total Current Assets 1,190 750
> > Plant and Equipment 1,648 2,313
> > Less: Acc Depr (500) (730)
> > Net plant and equipment 1,148 1,583
> > Long Term Investments 52 27
> > Total assets $2,390 $2,360
> >
> > Accounts payable $ 150 $ 315
> > Notes payable 125 106
> > Total Current liabilities 275 421
> > Bonds 500 430
> > Common Stock (.05 par) 175 165
> > Paid-in-capital 775 644
> > Retained earnings 665 700
> > Total owners' equity 1,615 1,509
> > Total liabilities and
> > owners' equity $2,390 $2,360
> >
> > Income Statement (1996) (1997)
> > Sales (100% credit) $1,100 $1,330
> > Cost of Goods Sold 600 760
> > Gross profit 500 570
> > Operating expenses 20 170
> > Depreciation 160 230
> > Net operating income 320 300
> > Interest expense 64 57
> > Net income before taxes 256 243
> > Taxes 87 96
> > Net income $ 169 $ 147
> >
> > 21a. (6 points) Calculate the following ratios for
> 1997
> >
> > Current Ratio Return on Assets
> > 750/421=1.78 147/2360=.06
> > Fixed Asset Turnover Debt Ratio
> > 1330/1583=.84 851/2360=.36
> > Profit Margin on Sales
> 147/1330=.11
> Times Interest Earned
> 300/57=5.26
> >
> > 21b. (2 points) For this firm, what was the smallest
> > source of funds in 1997?
> >
> > Positive change in A/P of $165
> >
> > 21c. (2 points) What was the firm's 1997 Net Cash
> > Flow?
> >
> > 147+730=877

> > 2. Last year your company had; sales = $200, Net
> > Profit Margin = 12%, Assets = $400, and a
> > debt-to-equity ratio=2.5. Calculate the Return on
> > Assets (2 points) and Return on Equity (3 points).
> > ROA = 24/400=.06
>
> I'm lost on ROE.....ME TOO!!!!
> CL+Equity = 400
> TD = CL+LTD
> >
> >
> >
> >

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Replies:

  • Re: Another sample Mid-term from Hodges -- Charles Hodges, 19:32:31 07/04/00 Tue
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