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Solutions to Homework 1, Acc Chapters 1, 2 & 3




Question;Solutions to Homework 1, Chapters 1, 2 & 3;1 The division of profits and losses among the members of a;partnership is formalized in the;A. indemnity clause.;B. indenture contract.;C. statement of purpose.;D. partnership agreement.;E. group charter.;2. Agency costs refer to;A. corporate income subject to double taxation.;B. the costs of any conflicts of interest between;stockholders and management.;C. the total dividends paid to stockholders over the;lifetime of a firm.;D. the costs that result from default and bankruptcy of a;firm.;E. the total interest paid to creditors over the lifetime of;the firm.;3. Working capital management includes decisions concerning;which of the following?;I. accounts payable;II. accounts receivable;III. long-term debt;IV. inventory;A. I and II only;B. I and III only;C. II and IV only;D. I, II, and IV only;E. I, III, and IV only;4. Working capital management;A. ensures that sufficient equipment is available to produce;the amount of product desired on a daily basis.;B. ensures that long-term debt is acquired at the lowest;possible cost.;C. ensures that dividends are paid to all stockholders on an;annual basis.;D. balances the amount of company debt to the amount of;available equity.;E. is concerned with managing day to day cash flow.;5. Which one of the following best describes the primary;advantage of being a limited partner rather than a general partner?;A. No potential financial loss;B. Liability for firm debts limited to the capital invested;C. Entitlement to a larger portion of the partnership's;income;D. Greater management responsibility;E. Ability to manage the day-to-day affairs of the business;6. A general partner;A. cannot lose more than the amount of his/her equity;investment.;B. has less legal liability than a limited partner.;C. faces double taxation whereas a limited partner does not.;D. has more management responsibility than a limited partner.;E. is the term applied only to corporations which invest in;partnerships.;7. A partnership;A. has less of an ability to raise capital than a;proprietorship.;B. agreement defines whether the business income will be;taxed like a partnership or a corporation.;C. allows for easy transfer of interest from one general;partner to another.;D. is taxed the same as a corporation.;E. terminates at the death of any general partner.;8. Which of the following are disadvantages of a;partnership?;I. limited life of the firm;II. personal liability for firm debt;III. greater ability to raise capital than a sole;proprietorship;IV. lack of ability to transfer partnership interest;A. I and II only;B. III and IV only;C. II and III only;D. I, II, and IV only;E. I, III, and IV only;9. Which of the following are advantages of the corporate;form of business ownership?;I. limited liability for firm debt;II. double taxation;III. ability to raise capital;IV. unlimited firm life;A. I and II only;B. III and IV only;C. I, II, and III only;D. II, III, and IV only;E. I, III, and IV only;10. Which one of the following statements is correct?;A. All types of business formations have limited lives.;B. Partnerships are the most complicated type of business to;form.;C. Both sole proprietorships and partnerships are taxed in a;similar fashion.;D. Both partnerships and corporations have limited liability;for general partners and shareholders.;E. Both partnerships and corporations incur double taxation.;11. The owners of a limited liability company prefer;A. being taxed like a corporation.;B. having liability exposure similar to that of a sole;proprietor.;C. being taxed personally on all business income.;D. having liability exposure similar to that of a general;partner.;E. being taxed like a corporation with liability like a;partnership.;12. Which type of business organization has all the;respective rights and privileges of a legal person?;A. Sole proprietorship;B. Corporation;C. General partnership;D. Limited partnership;E. Limited liability company;13. Which one of the following actions by a financial;manager creates an agency problem?;A. Increasing current costs in order to increase the market;value of the stockholders' equity;B. Agreeing to expand the company at the expense of;stockholders' value;C. Refusing to lower selling prices if doing so will reduce;the net profits;D. Agreeing to pay bonuses based on the book value of the;company stock;E. Refusing to borrow money when doing so will create losses;for the firm;14. Which of the following help convince managers to work in;the best interest of the stockholders?;I. compensation based on the value of the stock;II. stock option plans;III. threat of a proxy fight;IV. threat of conversion to a partnership;A. I and II only;B. II and III only;C. I, II and III only;D. I and III only;E. I, II, III, and IV;15. A proxy fight occurs when;A. the board solicits renewal of current members;B. a group solicits proxies to replace the board of;directors;C. a competitor offers to sell their ownership in the firm;D. the firm files for bankruptcy;E. the firm is declared insolvent;16. Which of the following are key requirements of the;Sarbanes-Oxley Act?;I. Officers of the corporation must review and sign annual;reports.;II. Officers of the corporation must now own more than 5% of;the firm's stock.;III. Annual reports must list deficiencies in internal;controls.;IV. Annual reports must be filed with the SEC within 30 days;of year end.;A. I only;B. II only;C. I and III only;D. II and III only;E. II and IV only;17. Insider trading is;A. legal.;B. impossible to have in our efficient market.;C. illegal.;D. discouraged, but legal.;E. list only the securities of the largest firms.;18. The Securities Exchange Act of 1934 focuses on;A. insider trading.;B. issuance of new securities.;C. sales of existing securities.;D. all stock transactions.;E. Federal Deposit Insurance Corporation (FDIC) insurance.;19. The basic regulatory framework in the United States was;provided by;A. the Securities Act of 1933.;B. the monetary system.;C. the Securities Exchange Act of 1934.;D. A and C.;E. All of the above.;20. Accounting profits and cash flows are;A. generally not the same since GAAP allows for revenue;recognition separate from the receipt of cash flows.;B. generally the same since accounting profits reflect when;the cash flows are received.;C. generally the same since they reflect current laws and;accounting standards.;D. generally not the same because cash inflows occur before;revenue recognition.;E. Both c and d.;21. Martha's Enterprises spent $2,400 to purchase equipment;three years ago. This equipment is currently valued at $2,000 on today's;balance sheet but could actually be sold for $2,000. Net working capital is;$300 and long-term debt is $900. Assuming the equipment is the firm's only;fixed asset, what is the book value of shareholders' equity?;A. $200;B. $800;C. $1,200;D. $1,400;E. The answer cannot be determined from the information;provided.;Book value of shareholders' equity = $2,000 + $300 - $900 =;$1,400;22. Art's Boutique has sales of $640,000 and costs of;$480,000. Interest expense is $40,000 and depreciation is $60,000. The tax rate;is 34%. What is the net income?;A. $20,400;B. $39,600;C. $50,400;D. $79,600;E. $99,600;Taxable income = $640,000 - $480,000 - $40,000 - $60,000 =;$60,000, Tax =.34($60,000) = $20,400, Net income = $60,000 - $20,400 = $39,600;23. Given the tax rates as shown, what is the average tax;rate for a firm with taxable income of $126,500?;A. 21.38%;B. 23.88%;C. 25.76%;D. 34.64%;E. 39.00%;Tax =.15($50,000) +.25($25,000) +.34($25,000);+.39($126,500 - $100,000) = $32,585, Average tax rate = $32,585? $126,500 =;.2576 = 25.76 percent;24. The tax rates are;as shown. Your firm currently has taxable income of $74,000. How much;additional tax will you owe if you increase your taxable income by $20,000?;A. $6,460;B. $6,710;C. $6,940;D. $7,160;E. $7,174;25. Teddy's Pillows has beginning net fixed assets of $600;and ending net fixed assets of $730. Assets valued at $400 were sold during the;year. Depreciation was $50. What is the amount of net capital spending?;A. $130;B. $150;C. $165;D. $180;E. $330;26. At the beginning of the year, long-term debt of a firm;is $270 and total debt is $340. At the end of the year, long-term debt is $290;and total debt is $390. The interest paid is $40. What is the amount of the;cash flow to creditors?;A. -$50;B. -$20;C. $20;D. $50;E. $60;27. Peggy Grey's Cookies has net income of $360. The firm;pays out 40 percent of the net income to its shareholders as dividends. During;the year, the company sold $80 worth of common stock. What is the cash flow to;stockholders?;A. $64;B. $136;C. $144;D. $224;E. $296;28. What is the;change in the net working capital from 2009 to 2010?;A. $1,235;B. $1,035;C. $1,335;D. $3,405;E. $4,740;Change in net working capital = ($7,310 - $2,570) - ($6,225;- $2,820) = $1,335;29. What is the amount of the non-cash expenses for 2010?;A. $570;B. $630;C. $845;D. $1,370;E. $2,000;30. What is the amount of the net capital spending for 2010?;A. -$290;B. $795;C. $1,080;D. $1,660;E. $2,165;31. What is the operating cash flow for 2010?;A. $845;B. $1,930;C. $2,215;D. $2,845;E. $3,060;32. What is the cash flow of the firm for 2010?;A. $405;B. $430;C. $1,340;D. $2,590;E. $3,100;33. What is the amount of net new borrowing for 2010?;A. -$225;B. -$25;C. $0;D. $25;E. $225;34. What is the cash flow to creditors for 2010?;A. -$405;B. -$225;C. $225;D. $385;E. $405;Topic: Cash Flow To Stockholders;35. What is the taxable income for 2010?;A. $360;B. $520;C. $640;D. $780;E. $800;36. What is the operating cash flow for 2010?;A. $520;B. $800;C. $1,015;D. $1,110;E. $1,390;37. What are the sales for 2010?;A. $4,225;B. $4,385;C. $4,600;D. $4,815;E. $5,000;38. Calculate net income based on the following information;sales are $300, cost of goods sold is $190, depreciation expense is $45;interest paid is $20, and the tax rate is 34%.;A. $11.90;B. $15.30;C. $29.70;D. $36.30;E. $45.00;39. What is the;operating cash flow for 2010?;A. $940.52;B. $985.71;C. $1,075.50;D. $1,230.00;E. $1,354.55;40. What are the sales for 2010?;A. $4,000.00;B. $4,385.50;C. $5,435.71;D. $5,525.50;E. $5,680.00;41. The only difference between Joe's and Moe's is that;Joe's has old, fully depreciated equipment. Moe's just purchased all new;equipment which will be depreciated over eight years. Assuming all else equal;A. Joe's will have a lower profit margin.;B. Joe's will have a lower return on equity.;C. Moe's will have a higher net income.;D. Moe's will have a lower profit margin.;E. Moe's will have a higher return on assets.;42. The three parts of the Du Pont identity can be generally;described as;I. operating efficiency, asset use efficiency and firm;profitability.;II. financial leverage, operating efficiency and asset use;efficiency.;III. the debt-equity ratio, the capital intensity ratio and;the profit margin.;IV. the equity multiplier, the profit margin and the total;asset turnover.;A. I and II only;B. II and III only;C. I and IV only;D. II and IV only;E. III and IV only;43. A firm has sales;of $3,600, costs of $2,800, interest paid of $100, and depreciation of $400.;The tax rate is 34%. What is the value of the cash coverage ratio?;A. 2;B. 4;C. 6;D. 8;E. 10;44. Mario's Home Systems has sales of $2,800, cost of goods;sold of $2,100, inventory of $500, and accounts receivable of $400. How many;days, on average, does it take Mario's to sell its inventory?;A. 65.2 days;B. 85.2 days;C. 86.9 days;D. 96.9 days;E. 117.3 days;45. Syed's Industries has accounts receivable of $700;inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How;long does it take Syed's to both sell its inventory and then collect the;payment on the sale?;A. 128 days;B. 146 days;C. 163 days;D. 190 days;E. 211 days;46. A firm has net working capital of $400, net fixed assets;of $2,400, sales of $6,000, and current liabilities of $800. How many dollars;worth of sales are generated from every $1 in total assets?;A. $1.33;B. $1.67;C. $1.88;D. $2.33;E. $2.50;47. Rosita's Restaurant has sales of $4,500, total debt of;$1,300, total equity of $2,400, and a profit margin of 5%. What is the return;on assets?;A. 5.00%;B. 6.08%;C. 7.39%;D. 9.38%;E. 17.31%;48. Lee Sun's has sales of $3,000, total assets of $2,500;and a profit margin of 5%. The firm has a total debt ratio of 40%. What is the;return on equity?;A. 6%;B. 8%;C. 10%;D. 12%;E. 15%;49. Patti's has net income of $2400, a price-earnings ratio;of 16, and earnings per share of $1.60. How many shares of stock are;outstanding?;A. 1,200;B. 1,400;C. 1,500;D. 1,600;E. 1,800;50. A firm has 6,000 shares of stock outstanding, sales of;$7,000, net income of $900, a price-earnings ratio of 12, and a book value per;share of $.60. What is the market-to-book ratio?;A. 1.6;B. 2.4;C. 3.0;D. 3.2;E. 3.6;51. A firm has 5,000 shares of stock outstanding, sales of;$6,000, an enterprise value of $5 million and an EBITDA of 1 million. What is;the enterprise value multiple?;A. 2.2;B. 2.4;C. 3.0;D. 4.0;E. 5.0;52. A firm has a market capitalization of $3 million, market;value of interest bearing debt of $1.5 million, book value of interest bearing;debt of $500,000 and cash of $200,000. What is the enterprise value?;A. $3.5 million;B. $3.9 million;C. $4.0 million;D. $4.3 million;E. $4.7 million;53. Frederico's has a profit margin of 5%, a return on;assets of 9%, and an equity multiplier of 1.5. What is the return on equity?;A. 6.7%;B. 8.4%;C. 11.2%;D. 13.5%;E. 19.6%;54. Samuelson's has a debt-equity ratio of 50%, sales of;$8,000, net income of $700, and total debt of $2,500. What is the return on;equity?;A. 8.25%;B. 9.50%;C. 10.75%;D. 12.00%;E. 14.00%;55. A firm has a return on equity of 15%. The debt-equity;ratio is 50%. The total asset turnover is 1.25 and the profit margin is 8%. The;total equity is $3,200. What is the amount of the net income?;A. $480;B. $500;C. $540;D. $600;E. $620;56. What is the days;sales in receivables in 2010?;A. 31.8 days;B. 32.5 days;C. 33.7 days;D. 41.9 days;E. 47.4 days;57. What is the equity multiplier for 2010?;A. 1.6;B. 1.8;C. 2.0;D. 2.3;E. 2.5;58. What is the cash coverage ratio for 2010?;A. 11.6;B. 12.8;C. 13.7;D. 17.3;E. 18.8;59. What is the return on equity for 2010?;A. 10.7%;B. 13.0%;C. 14.0%;D. 15.3%;E. 16.0%;60. Windswept, Inc. has 90 million shares of stock;outstanding. Its price-earnings ratio for 2010 is 12. What is the market price;per share of stock?;A. $57.12;B. $59.94;C. $64.13;D. $66.13;E. $67.03


Paper#45239 | Written in 18-Jul-2015

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