Question 1 Suppose that an analyst has noticed that the return on equity of the Johnson and Smith Company has declined from 2019 to 2020. Using the DuPont formula, explain the source of this decline. (millions) mg m Sales $1,000 $900 Earnings before interest and taxes $400 $380 Interest expense $30 $30 Taxes $100 $90 Total assets $2,000 $2,000 Shareholders' equity $1,250 $1,000 Question 2 You have just signed the contract on your rst coop apartment in NYC priced at $595,000. Your bank agreed to loan you money for the 80% of the price of the apartment if you put 20% down payment. You decide to take a 15-year mortgage with quoted APR of 3%. What is your monthly payment? Question 3 You have the following information on three bonds: Bond 1, Bond 2, and Bond 3. Bond Price Coupon YTM Time to maturity Bond 1 1002 ? 2% 7 years Bond 2 ? 2.5% 1.5% 15 years Bond 3 998 3% ? 4.5 years Assume semi-annual coupon payments. a. Find the annual coupon rate for Bond 1. b. Find the price of Bond 2. c. Find the yield to maturity (YT M, annualized) of Bond 3. Question 4 The Modemvax Ltd. has just paid an annual dividend of 40 cents. You forecast that for the next ve years dividends will grow at the rate of 25% a year over the period. From year ve on, you expect the growth rate to fall to the industry average of 8% and to remain at this level forever after. a. Draw the time line showing the dividends per share of this stock for years 1 through 6. b. Ifthe expected rate of return for this stock is 15%, calculate its price. Question 5 The most recent year's income statement for CeilingMart Co. was as follows (in millions of dollars): Sales 15 5,750 Cash-based Cost of Goods Sold $ 4,200 Depreciation w Operating Income (EBIT) $ 740 Interest Expense 35 m Earnings Before Taxes (EBT) $ 620 Income Taxes (25%) $ 15 Net Income W CeilingMart's balance sheets for the two most recent years showed (in millions of dollars): Meet Reeent Year mm Assets: Cash and Marketable $ 2,800 $ 2,170 Securities Accounts Receivable $ 1,150 $ 1,190 Inventory $ 1,750 $ 1,830 Gross Fixed Assets $11,250 $10,190 Accumulated ($ 1,900) ($ 1,090) Depreciation 3 Net Fixed Assets $ m $ am Total Assets $129.10 $15220 Liabilities and Owner's Equity Accrued Wages and Taxes $ 700 $ 930 Accounts Payable $ 2,340 $ 1,790 Notes Payable $ 1,400 $ 1,460 Long Term Debt $ 2,200 $ 2,010 Owner's equity $ 5,000 $ 5,000 Retained Earnings S m S M Total Claims $12,919 $15.22Q a. Complete a statement of cash ows for the most recent year. b. Compute CeilingMart's Net Operating Prot After Taxes (N OPAT) c. Find Operating Cash Flow (OCF) and Free Cash Flow (FCF). Question 6 a. What effective annual rate results from daily compounding of 10% (Assume 252 trading days per year)? b. Suppose that you carry a sizable balance on your credit card, issued by your bank. Your bank quotes only the annual percentage rate (APR) on your credit card. You make monthly credit card payments. Suppose that you found out that the e'ective annual rate (EAR), which you pay on your card is 25% per year. What is the APR that your bank quotes for you
