Download FIN550 final exam

USE THE FOLLOWING INFORMATION FOR THE NEXT SEVEN PROBLEMS
BMC CORPORATION INCOME STATEMENT
FISCAL YEAR ENDING 12/31/2004
(DOLLARS IN THOUSANDS)
Net Sales
Cost of Goods Sold
Gross Profit Margin
Depreciation
Operating Expense
Administrative Expense
Operating Profit
Interest
Profit Before Tax
Taxes
Net Income
$1025
682
343
31
103
127
82
27
55
17
$38
BMC CORPORATION BALANCE SHEET
FISCAL YEAR ENDING 12/31/2004
(DOLLARS IN THOUSANDS)
ASSETS
Cash
Accts rec
Inventory
Ttl cur assts
Net fixed assets
Total assets
$ 61
286
354
701
802
$1503
LIABILITIES
Notes payable
Accounts payable
Accruals
Total current liabilities
Long term debt
Common stock ($1.50 par)
Paid in surplus
Retained earnings
Total liabilities and
Stockholders' equity
12. What was BMC’S return on equity in 2004?
13. What was BMC’S quick ratio for 2004?
14. What was BMC’S interest coverage for 2004?
$223
152
32
407
306
102
226
462
$1503
15. What was BMC’S total asset turnover for 2004?
16. What was BMC’S current ratio at year-end 2004?
17. What was BMC’S net profit margin?
18. What was BMC’S fixed asset turnover ratio?
USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS
Assume that the dividend payout ratio will be 55 percent when the rate on long-term government
bonds falls to 9 percent. Since investors are becoming more risk averse, the equity risk premium
will rise to 8 percent and investors will require a 7 percent return. The return on equity will be
13 percent.
19. What is the expected sustainable growth rate?
20. What is your expectation of the market P/E ratio?
21. To what price will the market rise if the earnings expectation is $1.5?
22. At the end of the year 2004 the Office Equipment Industry had free cash flow to equity
(FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected
Year
Growth Rate
2005
2006
2007
2008
2009
2010
2011
2012
10%
15%
20%
25%
20%
15%
10%
7%
From year 2013 onward growth in FCFE is expected to remain constant at 5% per year. The
industry has a beta of 0.90 and the current industry price is $105. Currently the yield on 10-year
Treasury notes is 5% and the equity risk premium is 4%
Calculate the required rate of return on equity.
USE THE FOLLOWING INFORMATION FOR THE NEXT TWO QUESTIONS
Wal-Blue
DPS
1.00
Total Asset Turnover 3.20
Net Profit Margin
3.50%
EPS
4.00
Total Assets/Equity 3.00
Industry
1.50
2.50
3.00%
3.00
4.00
23. What are the ROE's for Wal-Blue and its industry?
24. What are the expected sustainable growth rates for Wal-Blue and its industry?
December futures on the S&P 500 stock index trade at 250 times the index value of 1187.70.
Your broker requires an initial margin of 10% percent on futures contracts. The current value of
the S&P 500 stock index is 1178.
25.
How much must you deposit in a margin account if you wish to purchase one
contract?