FIN550 final exam - BrainMass



USE THE FOLLOWING INFORMATION FOR THE NEXT SEVEN PROBLEMS

BMC CORPORATION INCOME STATEMENT

FISCAL YEAR ENDING 12/31/2004

(DOLLARS IN THOUSANDS)

Net Sales $1025

Cost of Goods Sold 682

Gross Profit Margin 343

Depreciation 31

Operating Expense 103

Administrative Expense 127

Operating Profit 82

Interest 27

Profit Before Tax 55

Taxes 17

Net Income $38

BMC CORPORATION BALANCE SHEET

FISCAL YEAR ENDING 12/31/2004

(DOLLARS IN THOUSANDS)

ASSETS LIABILITIES

Cash $ 61 Notes payable $223

Accts rec 286 Accounts payable 152

Inventory 354 Accruals 32

Ttl cur assts 701 Total current liabilities 407

Net fixed assets 802 Long term debt 306

Common stock ($1.50 par) 102

Paid in surplus 226

Retained earnings 462

Total liabilities and

Total assets $1503 Stockholders' equity $1503

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?

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 10%

2006 15%

2007 20%

2008 25%

2009 20%

2010 15%

2011 10%

2012 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 Industry

DPS 1.00 1.50

Total Asset Turnover 3.20 2.50

Net Profit Margin 3.50% 3.00%

EPS 4.00 3.00

Total Assets/Equity 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?

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