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Math 201 Fall-Winter Seminar 2018, University of Oregon Answer all of the following question and return your assignment to me by the due date listed on your syllabus. Show all work done to reach answers. 1. Fill in the blanks. Assets Liabilites uand Stockhors' Equity Curent Assets Current Liabilities Cash $250,000 Accounts Pauyable $620,000 Accounts receivable ( __________ less allowance for doubtful accounts of $20,000) 1,320,000 Notes Payable to banks 130,000 Inventory 1,410,000 Accrued wages ____________ Total Current assets __________ Taxes owed 100,000 Land __________ Total current liabilities $1,250,000 Plant and equipment ($2,800,000 less accumulated depreciation ___________) 2,110,000 Long-term debt ____________ Total Assets $5,390,000 Stockholders' equity 1,000,000 Common stock ($1 par, 750,000 shares authorized, 700,000 outstanding) ____________ Retained earnings ____________ 2. Given the following information, compute the current and quick ratios: Cash $100,000 Accounts receivable 357,000 Inventory 458,000 Current liabilities 498,000 Long-term debt 610,000 Equity 598,000 3. If a firm has sales of $25,689,000 a year, and the average collection period for the industry is 45 days, what should this firm’s accounts receivable be if the firm is comparable to the industry? 4.A firm with sales of $500,000 has average inventory of $200,000. The industry average for inventory turnover is four times a year. What would be the reduction in inventory if this firm were to achieve a turnover com parable to the industry average? 5. Jersey Mining earns $9.50 a share, sells for $90, and pays a $6 per share dividend. The stock is split two for one and a $3 per share cash dividend is declared. a. What will be the new price of the stock? b. If the firm’s total earnings do not change, what is the payout ratio be fore and after the stock split? 6. Firm A had the following selected items on its balance sheet: Cash $ 28,000,000 Common stock ($50 par; 2,000,000 shares outstanding) 100,000,000 Additional paid-in capital 10,000,000 Retained earnings 62,000,000 How would each of these accounts appear after: a. a cash dividend of $1 per share? b. a 5 percent stock dividend (fair market value is $100 per share)? c. a one-for-two reverse split? 7. Jackson Enterprises has the following capital (equity) accounts: Common stock ($1 par; 100,000 shares outstanding) $100,000 Additional paid-in capital 200,000 Retained earnings 225,000 8. What effect will a two-for-one stock split have on the following items found on a firm’s financial statements? a. earnings per share $4.20 b. total equity $10,000,000 c. long-term debt $4,300,000 d. additional paid-in capital $1,534,000 e. number of shares outstanding 1,000,000 f. earnings $4,200,000 9. The dividend-growth model may be used to value a stock: a. What is the value of a stock if: D0 = $2, k = 10%, g = 6% b. What is the value of this stock if the dividend is increased to $3 and the other variables remain constant? c. What is the value of this stock if the required return declines to 7.5 percent and the other variables remain constant? d. What is the value of this stock if the growth rate declines to 4 percent and the other variables remain constant? e. What is the value of this stock if the dividend is increased to $2.30, the growth rate declines to 4 percent, and the required return remains 10 percent? 10. Last year Artworks, Inc. paid a dividend of $1.75. You anticipate that the company’s growth rate is 6 percent and have a required rate of return of 9 percent for this type of equity investment. What is the maximum price you would be willing to pay for the stock? 11. An investor with a required return of 14 percent for very risky invest- ments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows: a. What is the maximum price that the investor should pay for each stock based on the dividend-growth model? b. If the investor does buy stock A, what is the implied percentage return? c. If the appropriate P/E ratio is 12, what is the maximum price the in vestor should pay for each stock? Would your answers be different if the appropriate P/E were 7? d. What does stock C’s negative growth rate imply? 12. Jersey Jewel Mining has a beta coefficient of 1.2. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $4.50 dividend that is growing at 4 percent annually. a. What is the required return for JJM? b. Given the required return, what is the value of the stock? c. If the stock is selling for $100, what should you do? d. If the beta coefficient declines to 1.0, what is the new value of the stock? e. If the price remains $100, what course of action should you take given the valuation in d? 13. Big Oil, Inc. has a preferred stock outstanding that pays a $7 annual dividend. If investors’ required rate of return is 10 percent, what is the market value of the shares? If the required return declines to 6 percent, what is the change in the price of the stock? 14. What should be the prices of the following preferred stocks if comparable securities yield 7 percent? Why are the valuations different? a. MN, Inc., $8 preferred ($100 par) b. CH, Inc., $8 preferred ($100 par) with mandatory retirement after 20 years 15. You are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay the dividend. To help allay that fear, you compute the times-preferred-dividend-earned ratio for the past three years from the following data taken from the firm's financial statements: What does your analysis indicate about the firm's capacity to pay preferred stock dividends? 16. A $1,000 bond has a coupon of 6 percent and matures after ten years. a. What would be the bond’s price if comparable debt yields 8 percent? b. What would be the price if comparable debt yields 8 percent and the bond matures after five years? c. Why are the prices different in a and b? d. What are the current yields and the yields to maturity in a and b? 17. a. A $1,000 bond has a 7.5 percent coupon and matures after ten years. If current interest rates are 10 percent, what should be the price of the bond? b. If after six years interest rates are still 10 percent, what should be the price of the bond? c. Even though interest rates did not change in a and b, why did the price of the bond change? d. Change the interest rate in a and b to 6 percent and rework your answers. Even though the interest rate is 6 percent in both calcula tions, why are the bond prices different? 18. Carrie’s Clothes, Inc. has a five-year bond outstanding that pays $60 annually. The face value of each bond is $1,000, and the bond sells for $890. a. What is the bond’s coupon rate? b.