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Stock returns, WACC, Operating and Cash cycle

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5. Consider the following information:
Rate of return if state occurs
State of Probability of
Economy State of Economy Stock R Stock S Stock T
Boom .25 .30 .40 .25
Good .40 .10 .15 .10
Poor .25 .00 -.05 -.10
Bust .10 -.25 -.15 -.20
Your portfolio is invested 40% in stock R, 35% in Stock S, and 25% in Stock T. What is the expected return of the portfolio? What is the standard deviation of the return?

6. Given the following information for Acme Corporation, find the weighted average cost of capital. Assume the company's tax rate is 3 5%.
Debt: 10,000 9 percent coupon bonds outstanding, $ 1,000 par value, 12
years to maturity, selling for 103 percent of par; the bonds make
annual payments.
Common stock; 100,000 shares outstanding, selling for $65 per share; beta is .95. Preferred stock: 15,000 shares of 7.5% preferred stock outstanding, currently selling
for $80 per share.
Market: 7 percent market risk premium and 5 percent risk-free rate.

7. Consider the following financial statement information for the Acme Corporation:
Item Beginning Ending
Inventory $120,000,000 $105,000,000
Accounts receivable 80,000,000 84,000,000
Accounts payable 75,000,000 79,000,000
Net sales $800,000,000
Cost of goods sold 550,000,000
Calculate the operating and cash cycles.

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Solution Summary

Calculations for expected return, standard deviation of the return, weighted average cost of capital, and operating and cash cycles have been carried out.

See Also This Related BrainMass Solution

Evaluating an Annual Report: Proctor & Gamble WACC, ratios, industry averages

Chosen Company: Proctor & Gamble

Review Appendix A for details to include in your analysis of your chosen company's financial health.

? Prepare a word paper that includes performance ratios based on the company's last two annual reports and data available on the company's Web site.

Compute the eight ratios listed below for two consecutive years. Discuss their significance for management and compare them to industry averages.

? Current Ratio
? Quick Ratio
? Inventory Turnover Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Sales to Inventory)
? Debt Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled TotalLiabilities to Net Worth)
? Net Profit Margin Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Sales)
? ROI (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Assets)
? ROE (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Net)
? Price-to-Earnings Ratio (P/E) Ratio

Analyze the company's working capital management. Explain why the company's operating and cash cycles are currently optimized. If you think they are not optimized,explain why.

Based on the company's financial statements, list the long-term debt held by the corporation, maturity dates and yield to maturity. List the types of stock issued by the company, the stocks' current selling price, and the 52-week average selling price.

o Compute the weighted average cost of capital (WACC) for both years and discuss your findings.

o Write a brief analysis that summarizes how your company compares to industry averages.

o Write your recommendations on whether as an investor you should buy this company's stock and why.

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