2. The Company had quite a few changes during the past year. The changes for the

Question

2. The Company had quite a few changes during the past year. The changes for their different balance sheet s from last year to this year were (the changes in parentheses are declines;, otherwise the changes are increases): (s8,000) for Receivables; ($4,100) for Payables: $6,000 for Cash, $7.700 for Short-term Notes Payable; ($4,100) for Plant, Property.&Equipment and ($6,400) for Long-Term Debt Which statement is most accurate? a. The change in net working capital is ($5,600)and represents a source of financing b. The change in net working capital is ($5,600)and represents a use of financing c. The change in net working capital is ($4,870)and represents a source of financing d. The change in net working capital is ($6,440)and represents a source of financing e. The change in net working capital is ($4,870jand ropresents a use of financing 3. Shareholders had a good year, earning a 20% annual rate of return company ust announced earnings per share of $2.50 The company has a 90% payout ratio. How much did the stock price change over the past year? a. $4.26 b. $3.52 .$5.16 d. $4.69 e. $3.88 The P/E ratio today is 100 and the

Explanation / Answer

Question - 2 ............. Select - Option - a

Question - 3 .............. Select - Option - e 3.88

P1 = Current price = EPS * P/E ratio = 2.5 * 10 = 25

P0 = Price at the beginning of the year = ? ( to be calculated )

D1 = Dividend = 2.50 * 90% = 2.25

Annual rate of return (or) Holding period return = [ ( P1 - P0 ) + D1 ] / P0 = 0.29 ( given)

[ (25 - P0) + 2.25 ] / P0 = 0.29

25 - P0 + 2.25 = 0.29 * P0

27.25 = 1.29 P0

P0 = 27.25 / 1.29 = 21.12

Change in price = P1 - P0 = 25 - 21.12 = $ 3.88

Receivables -8000 Payables 4100 Cash 6000 Shorterm Notes payable -7700 Sources of finance -5600

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