Question

1. ZYX Ltd. has sales of $1,000,000, retention ratio of 65%, equity multiplier of 2.5, dividends of $30,000, and equity of $312,500. What is the growth rate that the firm can achieve without outside financing?

Select one:

a. 6.11%

b. 6.76%

c. 7.13%

d. 7.68%

e. There is insufficient information given for this calculation.

2. WVU Corporation has a sustainable growth rate of 15%, total assets to sales ratio of 1.5, profit margin of 10%, and dividend payout of 50%. What is the firm’s target D/E ratio?

Select one:

a. 2.33

b. 2.67

c. 2.91

d. 3.33

e. 3.91

3. XYZ Co. is planning to issue stripped bonds with a face value of $100 and maturity of 10 years. What is the price of each stripped bond if the yield to maturity on similar bonds is 5.5% compounded semi-annually?

Select one:

a. $58.13

b. $58.54

c. $76.24

d. $94.72

e. $100.00

4. If Gamma Ltd. is a company that prohibits dividend payments entirely and forever, what will its stock be worth?

Select one:

a. Its stock price will be infinitely large.

b. Its stock price will be lower than other similar companies.

c. Its stock price must be calculated with the formula Benchmark P/E ratio x EPS.

d. Its stock will be worth nothing.

e. Its stock price must be calculated using the formula P = D/r.

Answer 1

1.

Given,

Retention ratio = 65% or 0.65

Equity multiplier = 2.5

Dividends = $30000

Equity = $312500

Solution :-