1.Which of the following statements is CORRECT?
a. In the statement of cash flows, depreciation charges are reported as a use of cash.
b. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
c. In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
d. In the statement of cash flows, a decrease in inventories is reported as a use of cash.
e. In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
2. Your girlfriend just won the Florida lottery. She has the choice of $11,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity?
Select the correct answer.
a. 5.34%
b. 8.04%
c. 8.94%
d. 6.24%
e. 7.14%
Exhibit 3.1
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's total assets turnover?
a. 1.40
b. 1.68
c. 0.90
d. 1.12
e. 2.02
3. Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 135,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?
Select the correct answer.
a. $27.35
b. $25.35
c. $28.35
d. $26.35
e. $29.35
A lockbox plan is most beneficial to firms that
a. have suppliers who operate in many different parts of the country.
b. receive payments in the form of currency, such as fast food restaurants, rather than in the form of checks.
c. have customers who operate in many different parts of the country.
d. have widely dispersed manufacturing facilities.
e. have a large marketable securities portfolio and cash to protect.
Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's dividends per share?
a. $3.53
b. $3.20
c. $3.88
d. $2.91
e. $2.62
Which of the following statements is CORRECT?
a. One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.
b. Corporations face fewer regulations than sole proprietorships.
c. It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.
d. One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.
e. If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
Other things held constant, which of the following would tend to reduce the cash conversion cycle?
a. Carry a constant amount of receivables as sales decline.
b. Offer longer payment terms to customers.
c. Place larger orders for raw materials to take advantage of price breaks.
d. Continue to take all discounts that are offered and pay on the net date.
e. Take all discounts that are offered.
You have just purchased a U.S. Treasury bond for $807.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?
Select the correct answer.
a. 7.18%
b. 2.98%
c. 4.38%
d. 1.58%
e. 5.78%
Swinnerton Clothing Company's balance sheet showed total current assets of $1,975, all of which were required in operations. Its current liabilities consisted of $575 of accounts payable, $300 of 6% short-term notes payable to the bank, and $145 of accrued wages and taxes. What was its net operating working capital that was financed by investors?
Select the correct answer.
a. $1,249
b. $1,242
c. $1,245
d. $1,255
e. $1,252
Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $65,000 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT?
Select the correct answer.
a. $56,750
b. $59,054
c. $60,206
d. $61,358
e. $57,902
A perpetuity pays $85 per year and costs $2,380. What is the rate of return?
Select the correct answer.
a. 3.97%
b. 3.77%
c. 3.37%
d. 3.17%
e. 3.57%
Money markets are markets for
a. Short-term debt securities.
b. Long-term bonds.
c. Foreign stocks.
d. Consumer automobile loans.
e. U.S. stocks.
Olivia Hardison, CFO of Impact United Athletic Designs, plans to have the company issue $500 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur?
a. The company's taxable income would fall.
b. The company would have to pay less taxes.
c. The company would have less common equity than before.
d. The company's interest expense would remain constant.
e. The company's net income would increase.
Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Balance Sheet (Millions of $)
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's days sales outstanding? Assume a 360-day year for this calculation.
a. 48.17
b. 53.38
c. 56.19
d. 50.71
e. 59.14
Which of the following will cause an increase in net working capital, other things held constant?
a. Cash is used to buy marketable securities.
b. A cash dividend is declared and paid.
c. Long-term bonds are retired with the proceeds of a preferred stock issue.
d. Merchandise is sold at a profit, but the sale is on credit.
e. Missing inventory is written off against retained earnings.
Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's EPS?
a. $6.80
b. $5.84
c. $6.15
d. $7.14
e. $6.47
The Cavendish Company recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company's total assets or operating income. Which of the following effects would occur as a result of this action?
a. The company's basic earning power ratio increased.
b. The company's equity multiplier increased.
c. The company's current ratio increased.
d. The company's debt ratio increased.
e. The company's times interest earned ratio decreased.
Ten years ago, Kronan Corporation earned $0.50 per share. Its earnings this year were $1.8. What was the growth rate in earnings per share (EPS) over the 10-year period?
Select the correct answer.
a. 11.07%
b. 12.37%
c. 13.67%
d. 14.97%
e. 16.27%
Jessie's Bobcat Rentals' operations provided a negative net cash flow last year, yet the cash shown on its balance sheet increased. Which of the following statements could explain the increase in cash, assuming the company's financial statements were prepared under generally accepted accounting principles?
a. The company sold some of its fixed assets.
b. The company retired a large amount of its long-term debt.
c. The company had high depreciation expenses.
d. The company repurchased some of its common stock.
e. The company dramatically increased its capital expenditures.
Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's ROE?
a. 9.91%
b. 9.44%
c. 8.54%
d. 8.99%
e. 10.41%
On its 2012 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year in 2013. Assuming that no earnings restatements were issued, which of the following statements is CORRECT?
a. The company must have had zero net income in 2013.
b. Dividends could have been paid in 2013, but they would have had to equal the earnings for the year.
c. The company must have paid no dividends in 2013.
d. The company must have paid out half of its earnings as dividends.
e. If the company lost money in 2013, they must have paid dividends.
Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue?
a. Taxable income will decrease.
b. The ROA will decline.
c. The times interest earned ratio will decrease.
d. Net income will decrease.
e. The tax bill will increase.
Tibbs Inc. had the following data for the year ending 12/31/12: Net income = $300; Net operating profit after taxes (NOPAT) = $270; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,300. What was its return on invested capital (ROIC)?
Select the correct answer.
a. 10.94%
b. 11.74%
c. 11.54%
d. 11.34%
e. 11.14%
Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's market-to-book ratio?
a. 0.66
b. 0.78
c. 0.92
d. 1.08
e. 0.56
Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
a. The company pays a dividend.
b. The company issues new common stock.
c. The company purchases a new piece of equipment.
d. The company gives customers more time to pay their bills.
e. The company repurchases common stock.
Summary balance sheet data for Greener Gardens Co. is shown below (in thousands of dollars). The company is in a highly seasonal business, and the data show its assets and liabilities at peak and off-peak seasons:
| |
Peak
|
Off-Peak
|
|
Cash
|
$ 50
|
$ 30
|
|
Marketable securities
|
0
|
20
|
|
Accounts receivable
|
40
|
20
|
|
Inventories
|
100
|
50
|
|
Net fixed assets
|
500
|
500
|
|
Total assets
|
$690
|
$620
|
| |
|
|
|
Payables and accruals
|
$ 30
|
$ 10
|
|
Short-term bank debt
|
50
|
0
|
|
Long-term debt
|
300
|
300
|
|
Common equity
|
310
|
310
|
|
Total claims
|
$690
|
$620
|
From this data we may conclude that
a. Greener Gardens follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.
b. Greener Gardens' current asset financing policy calls for exactly matching asset and liability maturities.
c. Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
d. Greener Gardens' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
e. Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
Which of the following factors would be most likely to lead to an increase in interest rates in the economy?
a. Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs.
b. The Federal Reserve decides to try to stimulate the economy.
c. There is a decrease in expected inflation.
d. Households reduce their consumption and increase their savings.
e. The economy falls into a recession.
Below are the year-end balance sheets for Wolken Enterprises:
|
Assets:
|
2013
|
2012
|
|
Cash
|
$ 200,000
|
$ 170,000
|
|
Accounts receivable
|
864,000
|
700,000
|
|
Inventories
|
2,000,000
|
1,400,000
|
|
Total current assets
|
$3,064,000
|
$2,270,000
|
|
Net fixed assets
|
6,000,000
|
5,600,000
|
|
Total assets
|
$9,064,000
|
$7,870,000
|
|
|
|
|
Liabilities and equity:
|
|
|
|
Accounts payable
|
$1,400,000
|
$1,090,000
|
|
Notes payable
|
1,600,000
|
1,800,000
|
|
Total current liabilities
|
$3,000,000
|
$2,890,000
|
|
Long-term debt
|
2,400,000
|
2,400,000
|
|
Common stock
|
3,000,000
|
2,000,000
|
|
Retained earnings
|
664,000
|
580,000
|
|
Total common equity
|
$3,664,000
|
$2,580,000
|
|
Total liabilities and equity
|
$9,064,000
|
$7,870,000
|
Wolken has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year non-callable, long-term debt in 2012. As of the end of 2013, none of the principal on this debt had been repaid. Assume that the company's sales in 2012 and 2013 were the same. Which of the following statements must be CORRECT?
a. Wolken increased its short-term bank debt in 2013.
b. Wolken issued long-term debt in 2013.
c. Wolken issued new common stock in 2013.
d. Wolken had negative net income in 2013.
e. Wolken repurchased some common stock in 2013.
If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.
a. The division's basic earning power ratio is above the average of other firms in its industry.
b. The division's total assets turnover ratio is below the average for other firms in its industry.
c. The division's debt ratio is above the average for other firms in the industry.
d. The division's DSO (days' sales outstanding) is 40, whereas the average for its competitors is 30.
e. The division's inventory turnover is 6, whereas the average for its competitors is 8.
JG Asset Services is recommending that you invest $1,400 in a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures?
Select the correct answer.
a. $1,679.96
b. $1,671.36
c. $1,675.66
d. $1,662.76
e. $1,667.06
Newsome Inc. buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 60 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
a. 33.39%
b. 25.09%
c. 36.73%
d. 27.59%
e. 30.35%
Exhibit 3.1
The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
|
Balance Sheet (Millions of $)
|
|
|
Assets
|
2012
|
|
Cash and securities
|
$ 1,554.0
|
|
Accounts receivable
|
9,660.0
|
|
Inventories
|
13,440.0
|
|
Total current assets
|
$24,654.0
|
|
Net plant and equipment
|
17,346.0
|
|
Total assets
|
$42,000.0
|
|
Liabilities and Equity
|
|
|
Accounts payable
|
$ 7,980.0
|
|
Notes payable
|
5,880.0
|
|
Accruals
|
4,620.0
|
|
Total current liabilities
|
$18,480.0
|
|
Long-term bonds
|
10,920.0
|
|
Total debt
|
$29,400.0
|
|
Common stock
|
3,360.0
|
|
Retained earnings
|
9,240.0
|
|
Total common equity
|
$12,600.0
|
|
Total liabilities and equity
|
$42,000.0
|
|
|
|
Income Statement (Millions of $)
|
2012
|
|
Net sales
|
$58,800.0
|
|
Cost of goods sold except depreciation
|
$54,978.0
|
|
Depreciation
|
$ 1,029.0
|
|
Earnings bef int and taxes (EBIT)
|
$ 2,793.0
|
|
Less interest
|
1,050.0
|
|
Earnings before taxes (EBT)
|
$ 1,743.0
|
|
Taxes
|
$ 610.1
|
|
Net income
|
$ 1,133.0
|
|
Other data:
|
|
|
Shares outstanding (millions)
|
175.00
|
|
Common dividends
|
$ 509.83
|
|
Int rate on notes payable & L-T bonds
|
6.25%
|
|
Federal plus state income tax rate
|
35%
|
|
Year-end stock price
|
$77.69
|
Refer to Exhibit 3.1. What is the firm's ROA?
a. 3.26%
b. 3.95%
c. 2.97%
d. 3.59%
e. 2.70%
Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?
a. The company issued new long-term debt.
b. The company made a large investment in a profitable new plant.
c. The company issued new common stock.
d. The company cut its dividend.
e. The company sold a division and received cash in return.
Which of the following statements is CORRECT?
a. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
b. The cash flows for an annuity due must all occur at the ends of the periods.
c. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
d. The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.
e. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as avariable annuity.
Considered alone, which of the following would increase a company's current ratio?
a. An increase in accounts receivable.
b. An increase in net fixed assets.
c. An increase in accounts payable.
d. An increase in accrued liabilities.
e. An increase in notes payable.
Suppose a State of North Carolina bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 10.1%, how much is the bond worth today?
Select the correct answer.
a. $369.26
b. $382.06
c. $372.46
d. $375.66
e. $378.86
Your aunt wants to retire and has $445,000. She expects to live for another 25 years and to earn 7.5% on her invested funds. How much could she withdraw at the end of each of the next 25 years and end up with zero in the account?
Select the correct answer.
a. $39,921.25
b. $39,743.95
c. $39,862.15
d. $39,980.35
e. $39,803.05
Your investment account pays 11.6%, compounded annually. If you invest $5,000 today, how many years will it take for your investment to grow to $9,140.20?
Select the correct answer.
a. 2.50
b. 8.50
c. 5.50
d. 4.00
e. 7.00
Over the years, Janjigian Corporation's stockholders have provided $16,000 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the firm's earnings. The firm now has 1,000 shares of common stock outstanding, and it sells at a price of $42.00 per share. How much value has Janjigian's management added to stockholder wealth over the years, i.e., what is Janjigian's MVA?
Select the correct answer.
a. $26,000
b. $26,004
c. $25,988
d. $25,996
e. $25,992
Other things held constant, which of the following alternatives would increase a company's cash flow for the current year?
a. Increase the number of years over which fixed assets are depreciated for tax purposes.
b. Pay down the accounts payables.
c. Pay workers more frequently to decrease the accrued wages balance.
d. Reduce the days' sales outstanding (DSO) without affecting sales or operating costs.
e. Reduce the inventory turnover ratio without affecting sales or operating costs.
The going rate of interest on a 5-year treasury bond is 4.25%. You have one that will pay $5,425 five years from now. How much is the bond worth today?
Select the correct answer.
a. $4,405.75
b. $4,434.55
c. $4,420.15
d. $4,412.95
e. $4,427.35
Firms generally choose to finance temporary current operating assets with short-term debt because
a. short-term debt has a higher cost than equity capital.
b. matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.
c. short-term interest rates have traditionally been more stable than long-term interest rates.
d. a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
e. the yield curve is normally downward sloping.