Question
1. A company begins the year with some debt. During the year the company makes a profit, which it uses to purchase the building it
1. A company begins the year with some debt. During the year the company makes a profit, which it uses to purchase the building it was renting. It otherwise takes no action to alter its balance sheet. What is its new leverage ratio compared to the start of the year?
a) higher
b) lower
c) the same
d) none of the above
2. You purchased a stock and have now reached the end of your holding period. All else the same, with respect to the discount rate the market applies now to this stock's expected cash flows, you prefer it to be:
a) high
b) low
c) depends on the discount rate at the time of your purchase
3. A company produced $300 million in earnings. If it has 50 million shares outstanding and is trading with a P-e ratio of 12.5, its price-per-share is:
a) 72.5
b) 75
c) 60
d) 62.5
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