Financial problems
Problem Set 1
Due: Monday, Sep. 30th, at the beginning of the class
You may work together in answering the questions, but each student should write his or her own answers. DUPLICATE ANSWERS WILL RECEIVE ZERO CREDIT. SHOW
ALL YOUR WORK FOR EACH SOLUTION. Answer each question clearly, completely, and neatly. 1. Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
1-1. Perrigo’s market capitalization is closest to:
1-2. Perrigo’s book value of equity is closest to:
1-3. Perrigo’s enterprise value is closest to:
1-4. Perrigo’s market debt to equity ratio is closest to:
1-5. Perrigo’s (book) debt to equity ratio is closest to:
2. Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
2-1. If ECE reported $15 million in net income, then ECE’s Return on Equity (ROE) is:
2-3. If ECE’s return on assets (ROA) is 12% , then ECE’s return on equity (ROE) is:
1
2-4. If ECE’s net profit margin is 8% , then ECE’s return on equity (ROE) is:
3. Consider the following four alternatives
i) $132 received in two years. ii) $160 received in five years. iii) $200 received in eight years. iv) $220 received in ten years.
Provide the present value and the ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year.
4. Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each. The bank has offered to allow Taggart Transcontinental to skip making the next two payments in stead of making one large payment at the end of the loan’s term in three years. If the interest rate on the loan
Due: Monday, Sep. 30th, at the beginning of the class
You may work together in answering the questions, but each student should write his or her own answers. DUPLICATE ANSWERS WILL RECEIVE ZERO CREDIT. SHOW
ALL YOUR WORK FOR EACH SOLUTION. Answer each question clearly, completely, and neatly. 1. Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
1-1. Perrigo’s market capitalization is closest to:
1-2. Perrigo’s book value of equity is closest to:
1-3. Perrigo’s enterprise value is closest to:
1-4. Perrigo’s market debt to equity ratio is closest to:
1-5. Perrigo’s (book) debt to equity ratio is closest to:
2. Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
2-1. If ECE reported $15 million in net income, then ECE’s Return on Equity (ROE) is:
2-3. If ECE’s return on assets (ROA) is 12% , then ECE’s return on equity (ROE) is:
1
2-4. If ECE’s net profit margin is 8% , then ECE’s return on equity (ROE) is:
3. Consider the following four alternatives
i) $132 received in two years. ii) $160 received in five years. iii) $200 received in eight years. iv) $220 received in ten years.
Provide the present value and the ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year.
4. Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each. The bank has offered to allow Taggart Transcontinental to skip making the next two payments in stead of making one large payment at the end of the loan’s term in three years. If the interest rate on the loan