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Question;Harmeling Enterprises experienced a;decline in net operating profit after taxes (NOPAT). Which of the following;definitely cannot help explain this decline?;A. a. Sales revenues decreased.;B. b. Costs of goods sold increased.;C. c. Depreciation increased.;D. d. Interest expense increased.;E. e. Taxes increased.;Question;2 of 20;Which of the following best;describes free cash flow?;A. a. Free cash flow is the amount;of cash flow available for distribution to all investors after all necessary;investements in operating capital have been made.;B. b. Free cash flow is the amount;of cash flow available for distribution to shareholders after all necessary;investements in operating capital have been made.;C. c. Free cash flow is the net;change in the cash account on the balance sheet.;D. d. Free cash flow is equal to;net income plus depreciation.;E. e. Free cash flow is equal to;the cash flow from non-taxable transactions.;Question;3 of 20;Assume that a company currently;depreciates its fixed assets over 7 years. Which of the following would occur;if a tax law change forced the company to depreciate its fixed assets over 10;years instead?;A. a. The company's tax payment;would increase.;B. b. The company's cash position;would increase.;C. c. The company's net income;would increase.;D. d. Answers a and c are correct.;E. e. Answers b and c are correct.;Question;4 of 20;Byrd Lumber has 2 million shares of;stock outstanding. On the balance sheet the company has $40 million worth of;common equity. The company's stock price is $15 a share. What is the company's;Market Value Added (MVA)?;A. a. ($80 million);B. b. ($20 million);C. c. ($10 million);D. d. $20 million;E. e. $80 million;Question;5 of 20;West Corporation has $50,000 which;it plans to invest in marketable securities. The corporation is choosing;between the following three equally risky securities: Alachua County tax-free;municipal bonds yielding 6 percent, Exxon bonds yielding 9.5 percent, GM;preferred stock with a dividend yield of 9 percent. West's corporate tax rate;is 35 percent. What is the after-tax return on the best investment alternative?;(Assume the company chooses on the basis of after-tax returns.);A. a. 8.06%;B. b. 7.13%;C. c. 6.18%;D. d. 6.55%;E. e. 6.00%;Question;6 of 20;Corporations face the following;corporate tax schedule;Taxable Income Tax on Base Rate;Taxable income;Tax on;Base;Rate;$ 0 - $ 50,000;$ 0;15%;$ 50,000 - $ 75,000;$7,500;25%;$ 75,000 - $100,000;$13,750;34%;$100,000 - $335,000;$22,250;39%;Company Z has $80,000 of taxable;income from its operations, $5,000 of interest income, and $30,000 of dividend;income from preferred stock it holds in other corporations. What is Company Z's;tax liability?;Corporations face the following corporate tax schedule;A. a. $12,250;B. b. $13,750;C. c. $16,810;D. d. $20,210;E. e. $28,100;Question;7 of 20;Mays Industries was established in;2002. Since its inception, the company has generated the following levels of;earnings before taxes (EBT) (losses are shown in parentheses);Year;EBT;$;2002;50,000;2003;40,000;2004;30,000;2005;20,000;2006;(60,000);2007;60,000;Assume that each year;the company has faced a 40 percent income tax rate. Also, assume that current;carry back and carry forward provisions were available in prior years. What is;the company's tax liability for 2007?;A. a. $20,000;B. b. $21,000;C. c. $22,000;D. d. $24,000;E. e. $26,000;Question;8 of 20;Garfield Industries is expanding its;operations throughout the Southeast United States. Garfield anticipates that;the expansion will increase sales by $1,000,000, and increase the costs of;goods sold by $700,000. Depreciation expenses will rise by $50,000 and interest;expense will increase by $150,000. The company's tax rate will remain at 40;percent. If the company's forecast is correct, how much will net income increase;or decrease, as a result of the expansion?;A. a. No change.;B. b. $40,000 increase.;C. c. $60,000 increase.;D. d. $100,000 increase.;E. e. $180,000 increase.;Question;9 of 20;Coolidge Cola is forecasting the;following income statement;Sales;$30,000,000;Operating costs excluding;depreciation;20,000,000;Depreciation;5,000,000;Operating income (EBIT);$;5,000,000;Interest expense;2,000,000;Taxable income (EBT);$;3,000,000;Taxes (40%);1,200,000;Net income;$;1,800,000;Assume that, with the exception of;depreciation, all other non-cash revenues and expenses sum to zero.;Congress is considering a proposal;which will allow companies to depreciate their equipment at a faster rate. If;this provision were put in place, Coolidge's depreciation expense would be;$8,000,000 (instead of $5,000,000). This proposal would have no effect on the;economic value of the company's equipment, nor would it affect the company's;tax rate, which would remain at 40 percent. If this proposal were to be;implemented, what would be the company's net cash flow?;A. a. $2,000,000;B. b. $4,000,000;C. c. $6,800,000;D. d. $8,000,000;E. e. $9,800,000;Question;10 of 20;Sanguillen Corp. showed retained;earnings of $400,000 on its balance sheet for 2006. In 2007, the company's;earnings per share (EPS) were $3.00 and its dividends paid per share (DPS) were;$1.00. The company has 200,000 shares of stock outstanding. What will be the level;of retained earnings on the company's 2007 balance sheet?;A. a. $400,000;B. b. $500,000;C. c. $600,000;D. d. $700,000;E. e. $800,000;Question;11 of 20;Ryngaert & Sons, Inc. has;operating income (EBIT) of $2,500,000. The company's depreciation expense is;$450,000, its interest expense is $120,000, and it faces a 40 percent tax rate.;What is the company's net income?;A. a. $1,890,000;B. b. $1,575,000;C. c. $1,428,000;D. d. $1,248,000;E. e. $1,358,000;Question;12 of 20;A firm purchases $10 million of;corporate bonds that paid a 16 percent interest rate, or $1.6 million in;interest. If the firm's marginal tax rate is 40 percent, what is the after-tax;interest yield?;A. a. 9.60%;B. b. 8.74%;C. c. 7.40%;D. d. 12.90%;E. e. 13.20%;Question;13 of 20;A firm invests in the common stock;of another company having a 16 percent before-tax dividend yield. If the firm's;marginal tax rate is 40 percent what is the after-tax dividend yield?;A. a. 8.63%;B. b. 9.64%;C. c. 10.40%;D. d. 14.08%;E. e. 13.10%;Question;14 of 20;The Carter Company's taxable income;and income tax payments are shown below for 2003 through 2006;Year;Taxable Income;Tax Payment;2003;$10,000;$1500;2004;5,000;750;2005;12,000;1,800;2006;8000;1,200;Assume that Carter's tax rate for;all 4 years was a flat 15 percent, that is, each dollar of taxable income was;taxed at 15 percent. In 2007, Carter incurred a loss of $19,000. Using;corporate loss carry-back, what is Carter's adjusted tax payment for 2006?;A. a. $230;B. b. $150;C. c. $630;D. d. $550;E. e. $830;Question;15 of 20;A firm can undertake a new project;that will generate a before-tax return of 20 percent or it can invest the same;funds in the preferred stock of another company that yields 13 percent before;taxes. If the only consideration is which alternative provides the highest;relevant (after-tax) return and the applicable tax rate is 40 percent, should;the firm invest in the project or the preferred stock?;A. a. Preferred stock, its;relevant return is 11.44 percent.;B. b. Project, its relevant return;is 0.56 percentage points higher.;C. c. Project, its after-tax;return is 12 percent.;D. d. Either alternative can be;chosen, they have the same relevant return.;E. e. All of the above are correct;except a and d.;Question;16 of 20;Cooley Corporation has $20,000 that;it plans to invest in marketable securities. It is choosing between MCI bonds;which yield 10 percent, state of Colorado municipal bonds which yield 7;percent, and MCI preferred stock with a dividend yield of 8 percent. Cooley's;corporate tax rate is 40 percent, and 70 percent of its dividends received are;tax exempt. What is the after-tax rate of return on the highest yielding;security?;A. a. 7.04%;B. b. 7.0%;C. c. 8.43%;D. d. 6.9%;E. e. 6.0%;Question;17 of 20;GPD Corporation has operating income;(EBIT) of $300,000, total assets of $1,500,000, and its capital structure;consists of 40 percent debt and 60 percent equity. Total assets were equal to;total operating capital. The firm's after-tax cost of capital is 11 percent and;its tax rate is 40 percent. The firm has 50,000 shares of common stock;currently outstanding and the current price of a share of stock is $30.00. What;is the firm's Market Value Added (MVA)?;A. a. $87,000;B. b. $29,500;C. c. $470,810;D. d. $600,000;E. e. $910,000;Question;18 of 20;GPD Corporation has operating income;(EBIT) of $300,000, total assets of $1,500,000, and its capital structure;consists of 40 percent debt and 60 percent equity. Total assets were equal to;total operating capital. The firm's after-tax cost of capital is 11 percent and;its tax rate is 40 percent. The firm has 50,000 shares of common stock;currently outstanding and the current price of a share of stock is $30.00. What;is the firm's Economic Value Added (EVA)?;A. a. $15,000;B. b. $17,000;C. c. $87,410;D. d. $183,210;E. e. $14,500;Question;19 of 20;An individual with substantial;personal wealth and income is considering the possibility of opening a new;business. The business will have a relatively high degree of risk, and losses;may be incurred for the first several years. Which legal form of business;organization would probably be best?;A. a. Proprietorship;B. b. Corporation;C. c. Partnership;D. d. S corporation;E. e. Limited partnership;Question;20 of 20;Which of the following statements is;correct?;A. a. In order to avoid double;taxation and to escape the frequently higher tax rate applied to capital;gains, stockholders generally prefer to have corporations pay dividends;rather than to retain their earnings and reinvest the money in the business.;Thus, earnings should be retained only if the firm needs capital very badly;and would have difficulty raising it from external sources.;B. b. Under our current tax laws;when investors pay taxes on their dividend income, they are being subjected;to a form of double taxation.;C. c. The fact that a percentage;of the interest received by one corporation, which is paid by another;corporation, is excluded from taxable income has encouraged firms to use more;debt financing relative to equity financing.;D. d. If the tax laws stated that;$0.50 out of every $1.00 of interest paid by a corporation was allowed as a;tadeductible expense, this would probably encourage companies to use more;debt financing than they presently do, other things held constant.;E. e. Statements b and d are both;correct.

 

Paper#49835 | Written in 18-Jul-2015

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