6.6% 8. Using only the data presented, which of the following statements is most correct? 2007 2006 2005 Average debt 5792.000 $800,000 5820,000 Average equity $215,000 $294.000 $364,000 Return on Assets 5.9% Quick Ratio 0.3 0.5 Sales $1,650,000 $1.452,000 $1,304,000 Cost of goods sold $1,345,000 51,176,000 $1,043,000 A: Gross profit margin has improved. B: Return on equity has improved. C: Leverage has declined. 7.2% 0.6 9. An investor believes Stock M will rise from a current price of $20 per share to a price of $26 per share over the next year. The company is not expected to pay dividend. The following information pertains: . Rf = 8% Market return = 16% (ATTENTIONI Not market risk premiuml) Beta = 1.7 Should the investor buy this stock? A: Yes, because it is undervalued B: No, because it is overvalued. C: No, because it is overvalued. 10. Which of the following statements about risk aversion is CORRECT? A: Risk averse investors will not take on risk. B: Given a choice between two assets with equal rates of return, the investor will always select the asset with the lowest level of risk. C: Risk Aversion implies that the risk-return line, the CML, and the SML are downward sloping curves. 11. An investor who requires an annual return of 12% has the choice of receiving one of the following: A. 10 annual payments of $1,225.00 to begin at the end of one year. B. 10 annual payments of $1,097.96 beginning immediately. Which option has the highest present value (PV) and approximately how much greater is it than the other option? A: Option B's PV is $27 greater than option A's. B: Option B's PV is $114 greater than option A's. c: Option A's PV is $42 greater than option B's. 12. An annuity will pay 8 annual payments of $100, with the first payment to be received one year from now. If the interest rate is 12% per year, what is the present value of this annuity? A: $496.76