Question

Suppose a firm’s stock is selling for $24. It just paid a $2.50 dividend and dividends are expected to grow at 5.5% per year in perpetuity. Approximately, what is the required return?

Group of answer choices

14.3%

14.8%

16.5%

9.9%

None of the above.

Bailey, Inc. has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total liabilities-to-total assets ratio of 46 percent. Approximately, what is the return on equity (ROE)?

Group of answer choices

18.56%

16.04%

13.09%

19.64%

None of the above.

Bernice’s has $823,000 in sales. The profit margin is 6.9 percent and the firm has 7,000 shares of stock outstanding. The market price per share is $15. What is the price-earnings ratio? (Note: The terms “earnings” and “net income” are equivalent here.)

Group of answer choices

3.51

3.98

4.42

3.15

None of the above.

Answer 1

Ans to Part 1 : firms stock expected rate of return:

Rate of return = (Dividend Payment/stock price)+Dividend Growth Rate

A)	Stock Price	$24
B)	Dividend Payment	$2.5
C)	Dividend growth rate	5.50%
D)	Rate of Return = (B/A)+C	= ((2.5/24)+0.055)*100
		15.92%

Ans : Non of the above group of answer as actual answer 15.92% is not matching in the answers.

Ans To Part 2 Question : Bailey's ROE

Profit Statement
A)	Bailey Inc' s Total Sales	$807,200
B)	Profit Margin %	9.68
C)	Total Profit =(A*B)/100	$78,136.96
Financial Position
A)	Total Asset	$1,105,100
B)	Liability -Asset Ratio	46%
C)	Total Liability (A*B)	$508,346
D)	Equity	Total Asset- Total Liability (A-C)
		$596,754
	Return on Equity	=( profit/Equity)*100
		=(78136.96/596,754)*100
		13.09%

Ans : 13.09%

Part 3 : to find out Price earning Ratio

Price Earning Ratio (P/E ratio) is calcualated by dividing a company's Current stock price by its earning per share (EPS)

EPS is calculated dividing he net income by number of shares

A)	Bernice’s sales	$823,000
B)	Profit Margin %	6.90%
C)	Total Profit=(A*B)	$56,787.00
D)	Net Income (here same as total profit as in question)	$56,787.00
E)	Number of Share	7,000
F)	Market price per share	$15
G)	Earning per Share(EPS) = D/E	$8
H)	Price Earning Ratio(P/E Ratio) = F/G	1.85

Ans: None of the above out of group of answers as P/E Ratio is 1.85 which is not exists in answers.