Fall-2012 FINAL EXAM AGEC 424
(246 total points)
You must show logically correct work, including calculator inputs and outputs for all problems to receive credit. Show signs on calculator inputs. Differentiate calculator outputs from inputs.
| Industry median
| AgBiz Inc.
Profit margin (PM = ROS)
Total Asset Turnover
| 2 x
| 4 x
Debt ratio (TL/TA)
DSO (also called ACP)
| 25 days
| 10 days
| 10 x
| 15 x
Accounts payable deferral
| 20 days
| 20 days
Use the above data for questions 1-4.
1. (3 points) How does the ROA for AgBiz and the industry compare (you have to first determine both ROAs to compare them)? Explain very briefly.
2. (12 points) Construct the extended Du Pont equation for both AgBiz Inc. and for the industry. Then analyze each of the three components of the company's ROE in a side-by-side comparison to the industry (say something about each component).
3. (8 points) Show a side by side comparison of the cash conversion cycle for AgBiz Inc. with the industry. Use the CCC to analyze working capital management for AgBiz Inc. in comparison to the industry (say something about each component).
4. (2 points) Based on the data and information on this page point out any red flags or major successes that you see for AgBiz Inc.
5. Critically evaluate the following statements made over the years by groups during AGEC 424 term project presentations. Explain in one or two sentences. a. (2 points) My company has a debt ratio (TL/TA) of 1.08.
b. (2 points) The industry has an equity multiplier of 0.73.
c. (2 points) My company has poor earnings from interest because TIE is only 2 compared to the industry median of 8.
d. (2 points) I need to present both ITO and inventory conversion period because they show different information.
6. The risk free rate and MRP were given to you as 2% and 5%, respectively, for the term project. a. (4 points) What are the required rates of returns for equity investors in company A with a beta of 0.5 and company B with a beta of 1.5? Show work
b. (2 points) Based on the data given, implicitly what is KM, the expected return on the market? Show work
c. (2 points) What is the economic factor making the required returns for companies A & B different than the market?
(6 points) The Paragon Company has sales of $2,000 with a cost ratio of 60%, current ratio of 1.5, inventory turnover ratio (based on cost) of 3.0, and average collection period (ACP) of 45 days. Complete the following current section of the firm's balance sheet. Clearly show/label the calculation of each component.
8. a. (7 points) What is the monthly payment on a 5-year car loan of $30,000 at 3.5% interest compounded monthly? Show work
b. (13 points) Construct an amortization table below for the first 2 months of the loan. Show work for the interest calculation Month
Beg. Bal. Payment Interest Prin. Reduction End. Bal.
9. (6 points) Smith Blarney is trying to sell my grandmother a semiannual, 10% coupon, $1000 face value bond with 12 years to maturity. Currently the market requires a 8% rate of return on bonds of this risk. What is this bond worth? Show work
10. Thompson Tires Inc. has an outstanding semiannual, 12% coupon, $1000 face value bond that is selling for $1185 and has 10 years to maturity. a. (6 points) What is the yield to maturity of this bond? Show work
b. (3 points) What is the current yield of this bond? Show work
11. (6 points) Assume the Thompson Tires bond above is callable in 5 years with a...
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