Your firm has a beginning balance of $8,000 cash, $2,000 inventory, and $10,000 initial equity. Your firm is operating in an all-cash environment without taxes. You sold $1,000 of inventory for three times the amount you paid for it. If this is your only transaction, your resulting balance sheet should most closely resemble which of […]
If Home Depot has before-tax earnings of $7,000,000, Pays $2,400,000 in taxes, has no preferred stock, and a beta of 1.20, what is the firm’s current average tax rate? A) 33.33% B) 34.29% C) 35.00% D) 36.14% ANSWER B Explanation: B) Current tax rate = taxes payable/before-tax earnings = $2,400,000/$7,000,000 = 34.29%.
Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock split, the firm’s shares should trade at ________ per share. A) $33.33 B) $66.67 C) $75.00 D) $100.00 ANSWER A
The modified internal rate of return method of capital budgeting was developed to overcome shortfalls in the net present value method. Indicate whether the statement is true or false ANSWER FALSE
As part of a union negotiation agreement, the United Clerical Workers Union conceded to be paid every two weeks instead of every week. A major firm employing hundreds of clerical workers had a weekly payroll of $1,000,000 and the cost of short-term funds was 12 percent. The effect of this concession was to delay clearing […]
Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, would be ________. If the firm were able to stretch its accounts payable to 60 days without damaging its credit rating, the cost […]
If a firm purchases $1,000 of inventory on credit, this should have the following change on the balance sheet: A) a $1,000 decrease in inventory and a $1,000 increase in retained earnings. B) a $1,000 increase in inventory and a $1,000 decrease in cash. C) a $1,000 increase in inventory and a $1,000 increase in […]
The primary purpose of a stock split is to ________. A) issue additional shares B) increase the dividend C) reduce the price of a stock D) reduce trading activity ANSWER C
The author estimates that in January of 2012, Home Depot had a required return on equity of 6.8%. He explains this relatively ________ rate as a reflection of ________. A) low; near all-time low long-term interest rates. B) low; Home Depot’s very low beta. C) high; near all-time high long-term interest rates. D) high; Home […]
Most of the time the book values and market values for equity are very similar, but this is not true for debt. Indicate whether the statement is true or false ANSWER FALSE
