Various Finance Questions
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1. Refer to the financial statements to answer the following questions.
How profitable was ABC Company when comparing their Gross Margin to total sales? (Answer as a percentage)
How profitable was ABC Company when comparing their Net Income to total sales? (Answer as a percentage)
What was ABC Company's Earnings Per Share?
What was ABC Company's Price to Earnings Ratio on 12/31/06?
What was ABC Company's EBIT (Earnings Before Interest and Taxes)?
What was ABC Company's Current Ratio?
What was ABC Company's Acid Test Ratio?
What percentage of ABC Company's assets is financed by debt?
What percentage of ABC Company's assets is fully paid for?
What was ABC Company's Return on Equity? (Answer as a percentage)
2. Find MNO's Weighted Average Cost of capital given the following information:
Tax Bracket: 30%
Percent of Company financed By Stock: 60%
Percent of Company financed by Bonds: 25%
Percent of Company financed by Preferred Stocks: 15%
Stock Required Rate of Return: 15%
Bond Yield: 7%
Preferred Stock Yield: 11%
3. Refer to the XYZ Stocks price data below:
Jan. 1, 2003 $10.00
Jan. 1, 2004 $6.00
Jan. 1, 2005 $9.00
Jan. 1, 2006 $13.50
This stock does not pay a dividend
What are XYZ's three holding period returns? (Find a percentage for the HPRs)
HPR 1 =
HPR 2 =
HPR 3 =
What is XYZ's average return?
What is XYZ's Geometric Mean Return?
4. Your daughter has a lawn mower business. She is considering either fixing her current lawn mower or buying a new "Super Duper Gas Saver" mower. It will cost $600 to fix her current lawn mower and $1,000 to buy the new lawn mower. In 4 years when she goes to college, she won't be able to sell her lawn mower. It will not have any market value. However, she should be able to sell the "Super Duper Gas Saver" mower for $400. The savings for each alternative is as follows:
Repair Lawn | Replace with
Mower Alternative |"Super Duper Gas Saver"
Year 1 gas savings $300 | $400
Year 2 gas savings $300 | $400
Year 3 gas savings $200 | $400
Year 4 gas savings $200 | $300
Your daughter has a 10% required rate of return
What is the payback for the "Repair Alternative"?
What is the payback for the "Replace Alternative"?
What is the Net Present Value for the "Repair Alternative"?
What is the Net Present Value for the "Replace Alternative"?
What is the Internal Rate of Return for the "Repair Alternative"?
What is the Internal Rate of Return for the "Replace Alternative"?
Which alternative should your daughter choose and why?
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Solution Summary
The solution has various finance questions relating to ratio calculation, WACC, holding period, return, payback, NPV and IRR calculation.
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1. Refer to the financial statements to answer the following questions.
How profitable was ABC Company when comparing their Gross Margin to total sales? (Answer as a percentage)
Gross Margin = (Sales - Manufacturing costs and other costs of sales)/Sales
= (27,973-18,990)/27,973 = 32.1%
How profitable was ABC Company when comparing their Net Income to total sales? (Answer as a percentage)
Net Margin = Net Income/Sales
= 1,152/27,973 = 4.12%
What was ABC Company's Earnings per Share?
Earnings per share = Net Income/Number of shares
=1,152/600 = $1.92
What was ABC Company's Price to Earnings Ratio on 12/31/06?
Price to Earnings = Market Price/EPS
=15.50/1.92 = 8.1 times
What was ABC Company's EBIT (Earnings before Interest and Taxes)?
EBIT = Net Sales - Manufacturing costs and other cost of sales - Selling General and Administrative expenses - Depreciation Expense
EBIT = 27,973-18,990 - 4,715-2,308 = $1,960
What was ABC Company's Current Ratio?
Current Ratio = Current Assets/Current Liabilities
= 11,319/7,995 = 1.42
What was ABC Company's Acid Test Ratio?
Acid test ratio = (total current assets - inventories)/current liabilities
= (11,319-5,473)/7,995 = 0.73
What percentage of ABC ...
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