Over the past year, M.D. Ryngaert & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company's sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these changes?

7. Company Triple A semi-annual par value bonds currently sell for $1,055. They have a 5.50% coupon rate and a 25-year maturity and are callable in 6 years at 8% premium. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of returns should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM and why? Is this a discount or premium bond and why?

Risk Preference Exercises—Compensation

1. Given what you know about risk preferences and what propels individuals to take risk evaluate, using what you know about the business model of each firm and from the perspective of the shareholder of the firm:

1. The use of trading limits by an investment bank’s proprietary trading desk. E.g., $2 mil in losses per trader per day and an aggregate limit of the trading desk = $40 mil per day. Evaluate the traders’ behavior in terms of risk taken and possibility for returns generated.

2. The effectiveness of a “Deals Committee” used by a private equity firm in which deal teams present the merits of the deals they want to close. The merits would include expected profitability and risk metrics.

3. An executive compensation plan in which the senior executive’s plan includes: $3 mil annual salary, fully vested pension and 100,000 warrants granted per year with a strike price of $75 (company shares are currently trading at $50).

Financial ratio analysis is conducted by managers, equity investors, long term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?

Determine the price of a share of stock whose last annual dividend payment was $1.5 assuming a required rate of return of 15% and considering the following restrictions: a) The dividend payment is expected to remain constant indefinitely. b) The dividend payment is expected to grow at a constant rate of 3% per year indefinitely. c) The dividend payment is expected to grow at a rate of 7% for four years and then immediately decline to 3% indefinitely. d) How does the calculated intrinsic values compare to the current price of $14? BONUS: Use an IF statement to display whether the stock is undervalued, overvalued, or fairly valued. Millennium Inc. stock is selling for $20 a share based on a 15 percent rate of return. What is the last annual dividend payment if the dividends are expected to grow at 3% annually?

eBook An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%. Bond C pays a 11% annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round your answers to the nearest cent. Years to Maturity Price of Bond C Price of Bond Z 4 $ $ 3 $ $ 2 $ $ 1 $ $ 0 $ $ Select the correct graph based on the time path of prices for each bond. The correct sketch is .

You bought the building, located at Little Ferry, NJ for $50 Million, which was 6% Capitalization Rate (CAP). This building is occupied only by Wal-Mart. You made 40% down and financed 60% of the purchase price at 5% APR, 5 year balloon with 25 year amortization schedule. You have 25 year Absolute Triple Net lease with Wal-Mart. There is no annual escalation of the base rent. The building’s $50 million value consists of $25 million land value and $25 million improvement. In addition to $50 million purchase price, you had to pay 3% transaction (closing) costs (equivalently $1.5 million), which include the legal, financing, administrative, inspection, and all taxes. Use 39 years for the annual depreciation. Assume 30% tax rate.

What is the net cash flow for the first year? Note: Net Cash Flow is defined as NOI – Annual Interest Payment – Tax + Annual Depreciation.

eBook Six years ago the Templeton Company issued 15-year bonds with a 14% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why the investor should or should not be happy that Templeton called them. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates.

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 16 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 16 more payments are to be made on Bond L. What will the value of the Bond L be if the going interest rate is 4%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 4%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 13%? Round your answer to the nearest cent. $ Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change? The change in price due to a change in the required rate of return increases as a bond's maturity decreases. Long-term bonds have greater interest rate risk than do short-term bonds. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. Long-term bonds have lower interest rate risk than do short-term bonds. Long-term bonds have lower reinvestment rate risk than do short-term bonds.

Last year FBGS Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%. The firm finances using only debt and common equity and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE?

This problem is similar in spirit to Example 12 (in the chapter) and Problem 15 (at the end of the chapter). I'd strongly suggest that you master those two problems before attempting this problem. Make sure that you draw a high quality, detailed timeline – similar in quality to those in Example 12 and Problem 15. Assume that you wish to begin saving for your child’s college education via making deposits into an investment account that is expected to earn 8% per year for the first 14 years. After year 14, you will place the money in a less risky investment account that is expected to earn only 5% per year, for as long as you have money in the account. You currently have $5,000 available, and you will deposit that amount into the savings account today. Thereafter you have decided to make savings deposits 3, 4, 5, … , 9 and 10 years from today. Each of these deposits will be larger than the prior deposit by 7%. You’ve estimated that one year of college will cost $52,000 in 18 years, and that the three subsequent years will each cost 5% more than the prior year. Determine the size of the first deposit required at time 3.

A bond has a $1,000 par value, 20 years to maturity, and a 5% annual coupon and sells for $860. What is its yield to maturity (YTM)? Round your answer to two decimal places. % Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $

eBook Problem Walk-Through Madsen Motors's bonds have 18 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9.5%; and the yield to maturity is 10%. What is the bond's current market price?

Tommy is examining some risk-free Singapore government securities. The yields to maturity on three government bonds with maturities of 1, 2 and 3 years are respectively 3%, 4% and 6%. The bonds all pay an annual coupon andhave the same coupon rate of 1% and a face value of $1,000.

1. Calculate the prices of the three (3) bonds.

2. (i)        Calculate the expected 1-year interest rate for year 2.

(ii)       Calculate the expected 1-year interest rate for year 3.

3. Tommy does not understand why yields differ among Singapore government securities and when compared to the yields on securities issued by other governments. Explain why this might be the case.

Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz, and the acquisition would allow Schultz to better control its material supply. The current cash flow from assets for Arras is $7.6 million. The cash flows are expected to grow at 5 percent for the next five years before leveling off to 2 percent for the indefinite future. The cost of capital for Schultz and Arras is 9 percent and 7 percent, respectively. Arras currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Schultz should pay for Arras? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))