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) A C corporation earns $4.50 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $2.00 dividend?
A) $2.48 B) $1.98 C) $0.90 D) $1.58
2) Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves?
A) The interests of the various owners may conflict with each other.
B) It is best for the control of the finances of a corporation to be in the hands of a disinterested third party
C) The owners may not be U.S. citizens or residents.
D) There are often many owners, and they can often change as they buy and sell stock.
3) Which of the following is NOT a function of the board of directors?
A) answering to shareholders of the company
B)monitoring the performance of the company
C) determining how top executives should be compensated
D) day-to-day running of the company
4) Which of the following is a measure of the aggregate price level of collections of pre-selected stocks?
A) Euronext B) NYSE C) S&P 500 D) NASDAQ
5) Which of the following is not a role of financial institutions?
A) Printing money for borrowers.
C) Spreading out risk-bearing.
B) Moving funds from savers to borrowers. D) Moving funds though time.
6) In the United States, publicly traded companies can choose whether or not they wish to release periodic
A) True B) False
7) A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?
A) a patent for a drug held by the company
B)the cash reserves of the company
C) commercial paper held by the company
D) the inventory of chemicals used to produce the drugs made by the company
Use the table for the question(s) below.
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Notes payable /
Current maturities of
Other current assets
Other current liabilities
Total current assets
Total current liabilities
Capital lease obligations
Net property, plant, and
Other long-term liabilities
Total long-term liabilities
Other long-term assets
Total long-term assets
Total liabilities and
8) Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are
trading at $16 per share, then Luther\'s market-to-book ratio would be closest to:
9) Which of the following statements regarding the income statement is INCORRECT?
A) The first line of an income statement lists the revenues from the sales of products or services.
B)The income statement shows the earnings and expenses at a given point in time.
C) The income statement shows the flow of earnings and expenses generated by the firm between two dates.
D) The last or \"bottom\" line of the income statement shows the firm\'s net income.
Use the table for the question(s) below.
Consolidated Income Statement
Year ended December 31 (in $ millions)
Cost of sales
Selling, general, and
Research and development
Depreciation and amortization
Earnings before interest and taxes (EBIT)
Interest income (expense)
Price per share
Shares outstanding (millions)
Stock options outstanding (millions)
Total Liabilities and Stockholders\' Equity
10) Refer to the income statement above. Luther\'s operating margin for the year ending December 31, 2005 is closest to:
A) 1.8% B) 2.7% C) 5.4% D) 16.7%
11) Allen Company bought a new copy machine to be depreciated straight line for three years for use by sales personnel. Where would this purchase be reflected on the Statement of Cash Flows?
A) It would be an addition to property, plant and equipment, so it would be an investing activity.
B)It would be an addition to cash, so would be reflected in the change in cash.
C) It would be an expense on the income statement, so it would be reflected in operating cash flows.
D) None of the above answers is correct.
12) If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 today or
A) $250.00 in one year. C) $235.85 in one year.
B) $265.00 in one year. D) none of the above
13) A dollar today and a dollar in one year may be considered to be equivalent. A) True B) False
14) An investment will pay you $100 in one year and $200 in two years. If the interest rate is 5%, what is the present value of these cash flows?
A) $285.71 B) 258.32 C) $276.65 D) $305.00
15)A homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2400. After installation the solar water heater will produce a small amount of hot water every day, forever, and will require no maintenance. How much must the homeowner save on water heating costs every year if this is to be a sound investment? (The interest rate is 9% per year.)
A) $262 B) $216 C) $248 D) $240
16) Which of the following would be LEAST likely to lower the interest rate that a bank offers a borrower?
A) The expected inflation rate is expected to be low.
B) The investment will be for a long period of time.
C) The borrower is judged to have a low degree of risk.
D) The number of borrowers seeking funds is low.
17) The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to:
A) 8.33% B) 8.00% C) 8.30% D) 8.24%
18) You are considering purchasing a new truck that will cost you $34,000. The dealer offers you 1.9% APR financing for 48 months (with payments made at the end of the month). Assuming you finance the entire
$34,000 and finance through the dealer, your monthly payments will be closest to:
Given the above term structure of interest rates, which of the following is most likely in the future?
Interest rates will rise.
Option II. Economic growth will slow.
Option III. Long-term rates will fall relative to short term rates.
A) Options I and II
B) Option II only
C) Option III only
D) Option I only
20)Which of the following is true about the face value of a bond?
A) It is the amount that is repaid at maturity.
B)It is the notional amount we use to compute coupon payments.
C) It is usually denominated in standard increments, such as $1,000.
D) All of the above are true.
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