Mechano Construction Inc generates perpetual annual EBIT of $500. The corporate tax rate is 35%. Mechano has 300 shares outstanding that trade for $6.89. Mechano has debt worth $1,512 and its debt-to-equity ratio is 0.667. The CFO of Mechano is thinking about borrowing another $100 to repurchase shares. However, the additional debt will increase the […]
Goodweek Tire, Inc, has recently developed a new tire, the SuperTread, and must decide whether to make the investment. The research and development costs so far total $10 million. Market research (costing $5 million) shows that there is significant demand for a SuperTread type tire. The SuperTread will be produced and sold for the next […]
Smith Motors Inc manufactures, distributes, and services automotive parts and engines worldwide. Smith’s income statement for the year just ending is shown below. Assume that today is the first day of Year 2 and that Smith’s common shares are trading at a price of $88. In its most recent Management Discussion and Analysis (MD&A) Smith’s […]
The top of the organizational chart of organizations is: A) CEO B) Board of Directors C) V.P. of Finance D) Shareholders E) Executive Chairman ANSWER D
Cadbury plc is a global confectionery company. Cadbury is forecasting its financial statements for Year 5. Selected financial information for Year 4 is provided in the table. What is the long term debt, the plug variable, amount for the forecasted year? To forecast accounts payable use the percentage of sales method based on Year 4 […]
Capital structure may be defined as A) a collection of securities assembled by an investor. B) a schedule of projects that have positive NPVs. C) the use of bank loans by a firm. D) the mix of debt and equity. E) another term for the investment opportunities’ schedule. ANSWER D
The degree of operating leverage varies with the level of A) fixed assets. B) total debt. C) accumulated depreciation. D) total equity. E) monopoly power. ANSWER A
Dr. Magneto is evaluating whether to open a private MRI clinic in leased office space in a local strip mall. The clinic will run for two years and then close. Before the clinic opens, the offices require $200,000 of renovations. Dr. Magneto will buy $20,000 of computer equipment and one MRI machine. The MRI machine […]
Which of the following is the best way to prevent an agency problem between shareholders and managers? A) Maintain a proportional relationship between a manager’s bonus and the number of employees in the firm. B) Compensate managers to a significant degree with shares of stock in their firm. C) Reward managers if they keep costs […]
When someone in the currency market can buy a currency at a low price and sell it for a higher price, it is known as ________. A) arbitrage B) the bid-ask spread C) hedging D) interbank currency market ANSWER Answer: A
