1) The Charleston Company is a relatively small, privately owned firm

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1) The Charleston Company is a relatively small, privately owned firm. Last year the company had after-tax income of $15,000, and 10,000 shares were outstanding. The owners were trying to determine the equilibrium market value for the stock, prior to taking the company public. A similar firm which is publicly traded had a price/earnings ratio of 5.0. Using only the information given, estimate the market value of one share of Charleston's stock.

a. $10.00

b. $ 7.50

c. $ 5.00

d. $ 2.50

e. $ 1.50

2) A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000, total assets of $22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm's ROA?

a. 8.4%

b. 10.9%

c. 12.0%

d. 13.3%

e. 15.1%