30 Jul CALCULATE THE NET PROFIT MARGIN, RETURN ON TOTAL ASSETS, RETURN ON EQUITY, CURRENT RATIO, TOTAL ASSET TURNOVER RATIO, AND ACCOUNT RECEIVABLE RATIO
Part One: Market Research
Required:
Collect relevant data from the income statement and the balance sheet for Wal-Mart for the last three years. Calculate the net profit margin, return on total assets, return on equity, current ratio, total asset turnover ratio, and account receivable ratio. Discuss what the changes in these ratios indicate, if anything, about Wal-Mart’s profitability, liquidity, and efficiency.
Part Two: Portfolio Management
You are considering adding an investment to your portfolio. You have identified the possible returns and the respective probabilities, as follows: Possible Returns Probability 6% 0.1 7% 0.2 8% 0.4 9% 0.2 10% 0.1
Required:
Calculate the expected return and the standard deviation of the investment. How would the addition of this asset change the nature of your current portfolio return if your current portfolio has an average return of 6.78%? Explain your answers. If the standard deviation of your portfolio is now .67266 and the new asset is added to your portfolio, what happens to the portfolio level of risk? Explain your answers. Should you make the investment? Why or why not?
Part Three: Stock Investment
You are considering an investment in JoeCo’s common stock and would like to know the appropriate price. The stock is currently selling for $48 per share and the last dividend paid was $1.65.
You have done research and concluded that the stock should grow at 14% for the next 4 years and then grow at 4% for the foreseeable future. If your required return on a stock at this risk level is 10%, what is the maximum price you should pay for the stock?
Part One: Market Research
Required:
Collect relevant data from the income statement and the balance sheet for Wal-Mart for the last three years. Calculate the net profit margin, return on total assets, return on equity, current ratio, total asset turnover ratio, and account receivable ratio. Discuss what the changes in these ratios indicate, if anything, about Wal-Mart’s profitability, liquidity, and efficiency.
Part Two: Portfolio Management
You are considering adding an investment to your portfolio. You have identified the possible returns and the respective probabilities, as follows:
Possible Returns Probability
6% 0.1
7% 0.2
8% 0.4
9% 0.2
10% 0.1
Required:
1. Calculate the expected return and the standard deviation of the investment.
2. How would the addition of this asset change the nature of your current portfolio return if your current portfolio has an average return of 6.78%? Explain your answers.
3. If the standard deviation of your portfolio is now .67266 and the new asset is added to your portfolio, what happens to the portfolio level of risk? Explain your answers.
4. Should you make the investment? Why or why not?
Part Three: Stock Investment
You are considering an investment in JoeCo’s common stock and would like to know the appropriate price. The stock is currently selling for $48 per share and the last dividend paid was $1.65.
You have done research and concluded that the stock should grow at 14% for the next 4 years and then grow at 4% for the foreseeable future. If your required return on a stock at this risk level is 10%, what is the maximum price you should pay for the
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