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Date Posted: 10:47:16 10/04/00 Wed
Author: Charles Hodges
Subject: Re: Spring 2000 (open book section)
In reply to: Kristin WEsoloski 's message, "Re: Spring 1999 (open book section)" on 19:06:35 10/03/00 Tue

Sorry about the delay in responding, it took me awhile to realize this was the spring 2000 exam.

> I have
> 1. c 4.5%

Initially, HR has a return of 20 and LR has a return of 12.5. After the change, HR has a return of 7 + 2 (11-7) = 15 and LR has a return of 7 + .5(11-7) = 9. This is a difference of 6% or answer E.

> 2. MRP = 5.4

12.25 = 5 + 1.15 (MRP), implies 7.25=1.15 MRP, or MRP = 6.3

> 3. e 2.154
step 1, find the beta of the portfolio, 17= 7 + B (14-7), or beta =1.429.
then solve, 1.429 = (2/15).8 + (5/15) 1.1 + (3/15)1.4 + (5/15)B, B = 2.026 or answer D.


> 4. a. portfolio required return < 11%

No, since your portfolio has a beta of more than 1 (specifically 1.08), the required return is greater than 11%. The correct answer is C, since your portfolio has beta of more than one, if the market risk premium increases by 2%, your portfolio's require return will increase by 2.16% (2 * 1.08)

> how about the answers to big question # 24?
>
> i have:
> net income 73
Yes, using Begin RE + Net Income - Dividends = End RE to solve

> tot liabs & equity 818
> total assets 818
yes, using Total Current + Ending New fixed Assets to solve.

> dividends per share .74
Yes, 74 / (30/.03) to solve

> fixed asset turnover ratio 2.3
yes


> accrued wages 82
using 352 as Total Current Liab, I get 159

> income tax 89
> total current liability 480
You need to back into this answer. I show 352, 818 - 131-100-30-205 = 352

> COGS 655
Again, backing into this number I show, 907-467 = 440

> cash 96
Yes

> net profitmargin on sales 8%
Yes, but calculate to .1%, therefore 8.0%
> return on assets ration 1.1
yes


> op profit??
there is a typo, from the bottom up 162+ 8 = 170, from the top down 467-90-110-70-7=190

>
> I would really appreciate if one of the professor
> could clear up the answers that we have posted here.

Sorry about the delay in posting.

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