Question

14. A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. The security's liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent. The security has no special covenants. What is the security's equilibrium rate of return? A. 1.78 percent B. 3.95 percent C. 8.90 percent D. 17.8 percent 17. Which of the following activities result in an increase in Kendra's firm's cash? A. Decrease fixed assets B. Decrease accounts payable C. Pay dividends D. Repurchase of common stock 18. You are evaluating the balance sheet for Benjamin's business From the balance sheet you find the following balances: cash and marketable securities = $400,000, accounts receivable = $200,000, inventory = $100,000, accrued wages and taxes = $10,000, accounts payable - $300,000, and notes payable=5600,000. What is his net working capital? 19. Migena's 2018 income statement lists the following income and expenses: EBIT = $900,000, interest expense = $85,000, and net income = $570,000. What are the 2018 taxes reported on the income statement?

Answer 1

14]

Equilibrium rate of return = real risk free rate + inflation premium + liquidity risk premium + maturity risk premium + default risk premium

Equilibrium rate of return = 2.25% + 2% + 0.75% + 0.90% + 3%

Equilibrium rate of return = 8.90%