By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?

Bonner Corp.’s sales last year were $415,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. Bonner’s new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? a. $164,330 b. $172,979 c. $182,083 d. $191,188 e. $200,747 [21]. LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? a. 7.57% b. 7.95% c. 8.35% d. 8.76% e. 9.20% [22]. Which of the following bonds has the greatest interest rate price risk? a. A 10-year $100 annuity. b. A 10-year, $1,000 face value, zero coupon bond. c. A 10-year, $1,000 face value, 10% coupon bond with annual interest payments. d. All 10-year bonds have the same price risk since they have the same maturity. e. A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments. [23]. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value? a. A 1-year zero coupon bond. b. A 1-year bond with an 8% coupon. c. A 10-year bond with an 8% coupon. d. A 10-year bond with a 12% coupon. e. A 10-year zero coupon bond. [24]. Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT? a. Bond A’s current yield will increase each year. b. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity. c. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year. d. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year. e. Over the next year, Bond A’s price is expected to decrease, Bond B’s price is expected to stay the same, and Bond C’s price is expected to increase. [25]. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is NOT CORRECT? a. The bond’s expected capital gains yield is positive. b. The bond’s yield to maturity is 9%. c. The bond’s current yield is 9%. d. If the bond’s yield to maturity remains constant, the bond will continue to sell at par. e. The bond’s current yield exceeds its capital gains yield. [26]. Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity? a. $1,077.01 b. $1,104.62 c. $1,132.95 d. $1,162.00 e. $1,191.79 [27]. Moerdyk Corporation’s bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond’s price? a. 1,063.09 b. 1,090.35 c. 1,118.31 d. 1,146.27 e. 1,174.93 [28]. 5-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*? a. 2.59% b. 2.88% c. 3.20% d. 3.52% e. 3.87% [29]. Keys Corporation’s 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Keys’ bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) ´ 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys’ bonds? a. 0.99% b. 1.10% c. 1.21% d. 1.33% e. 1.46% [30]. Niendorf Corporation’s 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf’s bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) ´ 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf’s bonds? a. 0.49% b. 0.55% c. 0.61% d. 0.68% e. 0.75% [31]. Stock A’s beta is 1.5 and Stock B’s beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct. a. Stock A would be a more desirable addition to a portfolio than Stock B. b. In equilibrium, the expected return on Stock B will be greater than that on Stock A. c. When held in isolation, Stock A has more risk than Stock B. d. Stock B would be a more desirable addition to a portfolio than Stock A. e. In equilibrium, the expected return on Stock A will be greater than that on Stock B. [32]. A stock has an expected return of 12.60%. Its beta is 1.49 and the risk-free rate is 5.00%. What is the market risk premium? a. 5.10% b. 5.23% c. 5.36% d. 5.49% e. 5.63% [33]. Ritter Company’s stock has a beta of 1.40, the risk-free rate is4.25%, and the market risk premium is5.50%. What is Ritter’s required rate of return? a. 11.36% b. 11.65% c. 11.95% d. 12.25% e. 12.55% [34]. Rodriguez Roofing’s stock has a beta of 1.23, its required return is 11.25%, and the risk-free rate is4.30%. What is the required rate of return on the stock market? (Hint: First find the market risk premium.) a. 9.95% b. 10.20% c. 10.45% d. 10.72% e. 10.98% [35]. The expected return on a stock is 12.4%, its beta is 1.36, and the risk-free rate is 5.25%. What is the expected return on the market? a. 11.04% b. 11.25% c. 11.46% d. 11.68% e. 11.90%