Reference no: EM13356075

Investment analysis and calculation of Return on Equity.

1. Suppose you borrowed $25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

a.$7,691.45
b.$7,548.02
c.$7,324.89
d.$7,011.87
e.$7,854.13

2. If a bank loan officer were considering a company's request for a loan, which of the Following statements would you consider to be CORRECT?

a.The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.
b.The lower the company's EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.
c.Other things held constant, the lower the current asset ratio, the lower the interest rate the bank would charge the firm.
d.Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.
e.Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.

3. During the latest year Ruth Corp. had sales of $300,000 and a net income of $20,000, and its year-end assets were $200,000. The firm's total debt to total assets ratio was 40%. Based on the Du Pont equation, what was the firm's ROE?

a.15.33%
b.15.67%
c.16.00%
d.16.33%
e.16.67%

4. Rangoon Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5. The 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?

a.$100,000
b.$110,000
c.$120,000
d.$130,000
e.$140,000