Chapter 4: Q.11B (page 397)
If the nominal interest rate is 5% and the inflation rate is 3%, then what is the real interest rate?
Answer
0.194
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Why do you think the index of consumer expectations is a useful leading indicator of the macro-economy? (See Table 12.2)
Which one of the following firms would be described as having below-average sensitivity to the state of the economy?
a. An asset play firm
b. A cyclical firm
c. A defensive firm
d. A stalwart firm
Tri-coat Paints has a current market value of \(41 per share with earnings of \)3.64. What is the present value of its growth opportunities (PVGO) if the required return is 9%?
The financial statements for Chicago Refrigerator Inc. (see Tables 14.15 and 14.16 ) areto be used to compute the ratios a through h for 2013.
a. Quick ratio.
b. Return on assets.
c. Return on common shareholders’ equity.
d. Earnings per share of common stock
e. Profit margin.
f. Times interest earned.
g. Inventory turnover.
h. Leverage ratio.
OceanGate sells external hard drives for \(200 each. Its total fixed costs are \)30 million, and its variable costs per unit are $140. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2 million drives, but if there is a recession, it will sell only half as many. What is the firm’s degree of operating leverage? If the economy enters a recession, what will be the firm’s after-tax profit?
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