Ans Doc 129


1. Professors Harry Markowitz and William Shape received their Nobel Prize in economics for their contribution to the
c. theories of risk-return and portfolio theory.
2. With a Subchapter corporation
a. income is taxed as direct income to stockholders.
3. Agency theory would imply that conflicts are more likely to occur between management and shareholders when
c. the chairman of the best interests of maximizing shareholder wealth.
4. The Sarbanes-Oxley Act set up the Public Company Accounting Oversight Board with the responsibility for all of the following except
c. Certifying the competence of financial executives.
5. Increased productivity due to technology has
d. helped to keep corporate costs in check.
6. Allen Lumber Company had earnings after taxes of $580,000 in the year 2006 with 400,000 shares outstanding. On January 1, 2007, the firm issued 35,000 new shares.
a. $1.67
7. Candy Company had sales of $240,000 and cost of goods sold of $108,000.what is the gross profit margin (ratio of gross profit to sales)?
b. 55%
8. Elgin Battery Manufactures had sales of $900,000 in 2006 and their cost of goods sold represented 65 percent of sales. Selling and administrative expenses were 9 percent of sales. Depreciation expenses was $10,000 and interest expenses for the year was $8,000. The firm’s tax rate is 30 percent. What is the dollar amount of taxes paid?
d. None of the above
9. A firm with earnings per share of $5 and a price-earnings ratio of 15 will have a stock price of
b. $75.00
10. Reinvested funds from retained earnings theoretically belong to:
b. common stockholders.
11. How many of the following items are found on the balance sheet, rather than the income statement?
Accounts receivable
Retained earnings
Income tax expense
Accrued expense
Selling and administrative expense
Plant and equipment
Operating expense
Marketable securities
Interest expense
d. 6 pf these items are found on the balance sheet.
12. Total stockholders’ equity consists of
d. preferred stock, common stock, capital paid in excess of par and retained earnings.
13. How many of the following items decrease cash flow in the Statement of Cash flows?
Increase in accounts receivable
Increase in notes payable
Depreciation expense
Increase in investments
Decrease n accounts payable
Decrease in prepaid expenses
Dividend payment
c. 4 of these items decrease cash flow
14. Given the following, what is free cash flow?
Cash flow from operating activities $175,000
Capital expenditures 35,000
Dividends 25,000
a. $115,000.
15. Farah Snack Co. has earnings after taxes of $128,750. Interest expenses for the year was $20,000; preferred dividends paid were $18,750; and common dividends paid were $30,000. taxes were $15,000. The firm has 100,000 shares of common stock outstanding. Earnings per share on the common stock was
b. $1.10
16. The Bubba Corp. had net income before taxes of $200,000 and sales of $2,000,000. If it is in the 50%tax bracket its after-tax profit margin is:
a. 5%
17. ABC Co. has an average collection period of 60 days. Total credits sales for the year were $3,000,000. What is the balance in accounts receivable at year-end?
c. $500,000
18. A firm has current assets of $75,000 and total assets of $375,000. The firm’s sales are $9000,000. The firm’s fixed asset turnover is
a. 3.0x
19. A firm’s long term assets = 75,000, total assets = $200,000, inventory = $25,000 and current liabilities = $50,000.
d. current ratio = 2.5; quick ration = 2.0
20. A firm has total assets of $2,000,000. It has $900,000 in long-term debt. The stockholders equity is $900,000. What is the total debt to asset ratio?
c. 55%
21. Depending upon the state of the economy, Ables Manufacturing Corp. expects to sell the following number of prefabricated buildings. The probability of each state is indicated. What is the expected value of the total sales projection?
Outcome Probability Units Price
Bad 0.20 100 $20
Normal 0.50 180 $25
Great 0.30 210 $30
b. $4,540
22. A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period the was 650 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)?
d. $8,100
23. GS Cookie Co. forecasts cash receipts for January and February of $9,000 and $10,000, respectively. Cash Payments of $4,000 and $5,000 are expected these two months. GS Cookie’s cash balance at the beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the year. GS Cookie has a $13,000 balance outstanding on its line of credit at the bank. Based on its cash budget, how much of the line of credit can GS Cookie repay by the end of February?
a. $10,000
24. If a firm has a break-even point of 20,000 units and the contribution margin on the firm’s single product is $3.00 per unit and fixed costs are $60,000, what will the firm’s net income be at sales of 30,000 units?
b. $30,000
25. If a firm has a price of $4.00, variable cost per unit of $2.50 and a breakeven point of 20,000 units, fixed costs are equal to:
c. $30,000
26. A firm has profits of $10,000 on unit sales of 5,000 units. Fixed costs are $30,000. What is the firm’s break-even sales level?
d. there is not enough information to determine the unit break-even point.
27. Tinbergen Cans expects sales next year to be $30,000,000. Inventory and accounts receivable (combined) will increase $4,000,000 to accommodate this sales level. The company has a profit margin of 10 percent and a 30 percent dividends payout. How much financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing
c. Between $1,000,000 and $2,000,000 of external financing is needed.
28. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. what is the expected value of return for Plan A over Plan B?
c. $4,800
29. Kuznets Rental Center requires $1,000,000 in financing over the next two year. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying
10 percent interest in the second year. Assuming Kuznets pays of the accrued interest at the end of each year, which of the following statement is true?
a. Kuznets will definitely end up paying more under the long-term financing plan.
30. Hicks Health Clubs, Inc., has $10,000,000 in assets. If it goes with a low liquidity plan for the assets if can earn a return of 15 percent, but with a high liquidity plan, the return will be 10 percent. If the firm goes with a short-term financing costs on the $10,000,000 will be 8 percent, and with a long-term financing plan, the financing costs on the $10,000,000 will be 9 percent. Compute the anticipated return after financing costs on the most conservative asset-financing mix.
b. $100,000
31. The strong form of the efficient market hypothesis states that
c. $200,000
32. The efficient market hypothesis deals primarily with
b. the degree to which prices adjust to new information.
33. XYZ Co. has forecasted June sales of 600 units and July sales of 100 units. The company maintain ending inventory equal to 125% of next month’s sales. June beginning inventory reflects this policy. What is June’s required production?
a. 1100 units
34. Wiggles Right forecast sales of $4,000 in January, $6,000 in February and $5,500 in March. All sales are on credit 40% is collected the month of sales and the remainder the following month. How much is collected from accounts receivable in February?
b. $4,800
35. A firm has a debt asset ratio of 75%, $240,000 in debt, and net income of $48,000. Calculate return on equity.
a. 60%
36. A firm has forecasted sales of $3,000 in April, $4,500 in May and $6,500 in June. All sales are on credit 30% is collected the month of sale and the remainder the following months what will be balance in accounts receivable at the beginning of July?
c. $4,550
37. Frisch Fish Corp expects net income next year to e $600,000. Inventory and accounts receivable will have to be increase be $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?
b. $100,000
38. Samueison will produce the 20,000 units using level production. If each bed costs $1,000 to manufacture, what is the dollar value of ending inventory at the end of Winter quarter?
a. $0
39. Allen Lumber Company had earning after taxes of $580,000 in the year 2006 with 400,000 shares outstanding On January 1,2007, the firm issued 35,000 new shares. Because of the proceeds from these new shares and other operating improvement, 2007 earning was 25 percent higher than in 2006. Earnings per share for the year 2007 was
a. $1.67
40. Consider the following information for Ball Crop.
Selling and administrative expense $50,000
Depreciation expense 80,000
Sales 400,000
Interest expense 30,000
Cost of goods sold 150,000
Taxes 18,550
c. $120,000