Finance Homework

Problem #1

If R_F =6 percent, b=1.3, and the ERP = 6.5 percent, compute K_e   (the required rate of return)

Problem #2

(Graph is attached for this problem with information needed to solve problem)

Assume that because of unusually bright long-term prospects, analysts determine that Johnson and Johnson P/E ratio in 2011 should be 10% above the average high J&J P/E ratio for the last 10 years.  Carry your calculation of the P/E two places to the right of the decimal point in this problem.

What would the stock price be based on the projected earnings per share of $5.35 (for 2011)

Problem #3

A firm has assets  of $1,800,000 and turns over its assets 2.5 times per year.  Return on assets is 20%.  What is the profit margin (Return on sales)?