BUSN 380 help Making Decisions/uophelp.com BUSN 380 help Making Decisions/uophelp.com | Page 53

Also assume the investment’s value has decreased to $7,400 by the end
of the year.
a. What is the rate of return for this investment?
b. Is the rate of return a positive or negative number?
Negative
3. Calculating Earnings Per Share, Price-Earnings Ratio, and Book
Value. As a stockholder in Bozo Oil Company, you receive its annual
report. In the financial statements, the firm has reported assets of $9
million, liabilities of $5 million, after-tax earnings of $2 million, and
750,000 outstanding shares of common stock.
a. Calculate the earnings per share of Bozo Oil’s common stock. (p. 457)
b. Assuming that a share of Bozo Oil’s common stock has a market
value of $40, what is the firm’s price-earnings ratio? (p. 457)
c. Calculate the book value of a share of Bozo Oil’s common stock. (p.
461)
4. Determining Interest and Approximate Bond Value. Assume that
three years ago, you purchased a corporate bond that pays 9.5 percent.
The purchase price was $1,000. Also assume that three years after your
bond investment, comparable bonds are paying 8 percent.
a. What is the annual dollar amount of interest that you will receive from
your bond investment?
b. Assuming that comparable bonds are paying 8 percent, what is the
approximate dollar price for which you could sell your bond?