Corporate Finance First Half

You purchased an option to buy 100 shares of Apple stock at a stock price of $180. The cost of the option was $360. Apple stock is now selling for $185. What is your overall profit from exercising the option?

$5 profit on each share * 100 shares = $500-$360 cost of the option = $140 profit

What is the expected Future Value in 5 years of $10,000 invested in a mutual fund earning 5% per year?

10,000 * 1.2763 = 12,763

What is the expected Future Value in 10 years of $10,000 invested in a mutual fund returning 7% per year?

10,000*1.9672 = 19,672

Bauer Software's current balance sheet shows total common equity of $5,125,000. The company has 530,000 shares of stock outstanding, and they sell at a price of $27.50 per share. By how much do the firm's market and book values per share differ? a. $17.83 b. $18.72 c. $19.66 d. $20.64 e. $21.67

a. $17.53

What is the present value of a $300,000 payment in 5 years when the discount rate is 10%? a. $186,270 b. $483,150 c. $1,137,240 d. $300,000 e. $170,220

a. $186,270

ABC company had sales of $5,000,000 last year. The company also had interest expense of $50,000, general and administrative expense of $1,500,000 and Cost of Goods Sold of $2,000,000. What was ABC's Gross Margin and Gross Margin % a. $3,000,000, 60% b. $1,500,000, 30% c. $1,450,000, 29% d. Unknown without knowing Total Assets

a. $3,000,000, 60% 5,000,000-2,000,000=3,000,000 3,000,000/5,000,000=60%

Mrs. Jones invested $2,000 into a retirement account at the end of each year for 40 years and earned 7%. How much does Mrs. Jones have in her account? a. $399,270 b. $2,140 c. $29,949 d. $80,000

a. $399,270

What's the Present Value of this stream of cash flows at a 12% discount? End of Year 1 $2,500 End of Year 2 $3,500 End of Year 3 $2,800 a. $7,015.31 b. $8,800 c. $6,985.44 d. $4,455

a. $7,015.31

You made a one time investment of $50,000 into an account earning 4.0%. How much will your account be worth in 15 years? a. $90,045 b. $125,345.25 c. $27,765 d. $285,432

a. $90,045

KBM Corporation had sales of $100 Million with Cost of Goods Sold (COGS) of $65 Million. Additionally the company had research and development costs of $5 Million, general and administrative costs of $10 Million and tax expense of $5 Million. The company has 50 employees. What is KBM Corporation's Gross Profit Margin? a. 35% b. $30,000 per employee c. Impossible to calculate d. 15%

a. 35%

River Corp's total assets at the end of last year were $415,000 and its net income was $32,750. What was its return on total assets? a. 7.89% b. 8.29% c. 8.70% d. 9.14% e. 9.59%

a. 7.89%=32,750/415,000

Which should you pick for the best return? a. A savings account compounded daily. b. A savings account compounded yearly. c. A savings account that has no compounding. d. A savings account compounded quarterly.

a. A savings account compounded daily.

. You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT? a. Its total assets turnover must be above the industry average. b. Its return on assets must equal the industry average. c. Its TIE ratio must be below the industry average. d. Its total assets turnover must be below the industry average. e. Its total assets turnover must equal the industry average.

a. Its total assets turnover must be above the industry average.

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction? a. This is an example of a direct transfer of capital. b. This is an example of a primary market transaction. c. This is an example of an exchange of physical assets d. This is an example of a money market transaction. e. This is an example of a derivative market transaction.

a. This is an example of a direct transfer of capital

Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market." a. True b. False

a. True

Which should you pick for the best return? Select on a. a e:savings account compounded daily. b. A savings account compounded yearly. c. A savings account that has no compounding. d. A savings account compounded quarterly.

a. a savings account compounded daily.

Which of the following statements is correct? a. hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management b. the efficiency of the U.S. economy would be probably be increased if hostile takeovers were absolutely forbidden c. hostile takeovers are most likely to occur when a firm's stock sells at a price above its likely future performance d. stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value

a. hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is correct? a. its total asset turnover must be above the industry average b. its return on assets must equal the industry average c. its TIE ratio must be below the industry average

a. its total asset turnover must be above the industry average

A firm wants to strengthen its financial position. Which of the following actions would increase its quick ratio? a. offer price reduction along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable b. issue new common stock and use the proceeds to increase inventories c. speed up the collection of receivables and use the cash generated to increase inventories d. use some of its cash to purchase additional inventories e. issue new common stock and use the proceeds to acquire additional fixed assets

a. offer price reduction along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable

Which of the following factors could explain why Michigan Energy's cash balance increased even though it had a negative cash flow last year? a. The company sold a new issue of bonds. b. The company made a large investment in new plant and equipment. c. The company paid a large dividend. d. The company had high depreciation expenses. e. The company repurchased 20% of its common stock.

a. the company sold a new issue of bonds

Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market." a. true b. false

a. true

If someone deliberately understates costs and thereby increases profits, this can cause the price of the stock to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized. a. true b. false

a. true

If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year. a. True b. False

a. true

If you decide to buy 100 shares of Google, you would probably do so by calling your broker and asking him or her to execute the trade for you. This would be defined as a secondary market transaction, not a primary market transaction. a. true b. false

a. true

Mortgage and Car Loans typically have equal monthly payments and are called amortized loans. a. True b. False

a. true

Ratio analysis involves analyzing financial statements to help appraise a firm's financial position and strength a. true b. false

a. true

Starting to invest early for retirement increases the benefits of compound interest. a. True b. False

a. true

The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the stock's price during the year, divided by its beginning-of-year price. a. true b. false

a. true

The current and quick ratios both help us measure a firm's liquidity. the current ratio measures the relationship of the firm's current assets to its current liabilities, while the quick ratio measures the firm's ability to pay off short-term obligations without relying on the sale of inventories. a. true b. false

a. true

The days sales outstanding tells us how long it takes, on average, to collect after a sale is made. The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time a. true b. false

a. true

The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its current assets a. true b. false

a. true

The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the greater the percentage of the payment that will be a repayment of principal. a. True b. False

a. true

What is the Present Value of a $10,000 payment in 10 years when the discount rate is 8%? a. $4,632 b. $21,589 c. $10,000 d. $8,000

b. $21,589

Beranek Corp has $665,000 of assets, and it uses no debt - it is financed only with common equity. The new CFO wants to employ enough debt to raise the debt/assets ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio a. $303,240 b. $266,000 c. $324,520 d. $250,000 e. $252,700

b. $266,000=665,000*0.4

Beranek Corp has $720,000 of assets, and it uses no debt--it is financed only with common equity. The new CFO wants to employ enough debt to raise the debt/assets ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? a. $273,600 b. $288,000 c. $302,400 d. $317,520 e. $333,396

b. $288,000=0.4*720,000

Brown Office Supplies recently reported $15,500 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's earnings before taxes (EBT)? a. $4,627 b. $4,870 c. $5,114 d. $5,369 e. $5,638

b. $4,780

Consider a one-year discount bond that pays $1,000 one year from now. If the rate of discount is 7 percent, the present value of the bond is a. $930.00. b. $934.58. c. $993.00. d. $993.46.

b. $934.58. 1,000 * .9346 =934.60

CORP FIN CORPORATION had sales of $2,500,000 in 2019 with COGS of $1,800,000 and assets of $300,000. CORP FIN also had 250 employees and 1 million of shares outstanding. What is CORP FIN's gross profit margin? a. 16% b. 28% c. 250% d. unknown because equity is not known

b. 28% gross profit margin=revenue-cogs/revenue

Because the U.S. tax system is a progressive tax system, a taxpayer's marginal and average tax rates are the same. a. True b. False

b. False

Which of the following is a primary market transaction? a. You sell 200 shares of IBM stock on the NYSE through your broker. b. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock. c. IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker. d. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction. e. IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

c. IBM issues 2,000,000 shares of new stock and sells than to the public through an investment banker

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? a. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000. b. The discount rate decreases. c. The riskiness of the investment's cash flows increases. d. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years. e. The discount rate increases.

b. The discount rate decreases.

A decline is a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid a. true b. false

b. false

An increase in accounts receivable represents an increase in net cash provided by operating activities because receivables will produce cash when they are collected a. true b. false

b. false

If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline. a. true b. false

b. false

the more conservative a firm's management is, the higher its debt ratio is likely to be a. true b. false

b. false

The Dow Jones Industrial Average, the S&P 500, the Shanghai, the FTSE, are all? a. Separate companies listed on Stock Exchanges b. Stock Indexes c. Bond Indexes d. Stock Exchanges

b. stock indexes

Which of the following statements is correct? a. even though Firm A's current ratio exceeds that of Firm b, firm B's quick ratio might exceed that of A. However, if A's quick ratio exceeds B's then we can be certain that A's current ratio is also larger than B's b. suppose a firm wants to maintain a specific TIE ratio. It knows the amount of debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio c. since the ROA measures the firm's effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA d. suppose all firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive products and capital markets. However, firms face different operating conditions because, for example, the grocery store industry is different from the airline industry. Under these conditions, firms with high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios. e. Klein Cosmetics has a profit margin of 5.0%, a total asset turnover of 1.5 times, a zero debt ratio and therefore an equity multiplier of 1.0, and a ROE of 7.5%. The CFO recommends that the firm borrow money, use it to buy back stock, and raise the debt ratio to 50% and the equity multiplier to 2.0. She thinks that operations would not be affected, but interest on the new debt would lower the profit margin to 4.5%. This would probably not be a good move, as it would decrease the ROE from 7.5% to 6.5%

b. suppose a firm wants to maintain a specific TIE ratio. It knows the amount of debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio

Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's net cash provided from operations increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation? a. The company cut its dividend. b. The company made large investments in fixed assets. c. The company sold a division and received cash in return. d. The company issued new common stock. e. The company issued new long-term debt

b. the company made large investments in fixed assets

Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-assets ratio was 67.5%. Based on the DuPont equation, what was the ROE? a. 21.98% b. 18.94% c. 23.38% d. 22.68% e. 22.22%

c. 0.675*250,000=168,750 250,000-168,750=81,250 19,000/325,000=5.85% 250,000/81,250=3.08

Garcia Industries has sales of $167,500 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant? a. $508.32 b. $405.68 c. 488.77 d. $386.13 e. $518.09

c. (x/167,500)*365=27 x=12,390.41 18,500-12,390.41=6,109.59 6,109.59*.08=488.77

For 2011, Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including depreciation). The company has $20,500 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 10%, and the federal-plus-state income tax rate was 40%. What was the firm's Economic Value Added (EVA), i.e., how much value did management add to stockholders' wealth during 2011? a. $1,670 b. $1,758 c. $1,850 d. $1,943

c. $1,850

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. What is the firm's total asset turnover? a. 1.26 b. 1.43 c. 1.20 d. 1.48 e. 1.38

c. 1.20 net sales/total assets=asset turnover

Royce Corp's sales last year were $280,000, and its net income was $23,000. What was its profit margin? a. 7.41% b. 7.80% c. 8.21% d. 8.63% e. 9.06%

c. 8.21%=23/280

Which of the following statements is CORRECT? a. One of the advantages of the corporate form of organization is that it avoids double taxation b. It is easier to transfer one's ownership interest in a partnership than in a corporation. c. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability One of the disadvantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote"

c. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability

Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet? a. The company repurchases common stock. b. The company pays a dividend. c. The company issues new common stock. d. The company gives customers more time to pay their bills. e. The company purchases a new piece of equipment.

c. The company issues new common stock.

A basic tenet of Generally Accepted Accounting Principles is a. accounts payable must equal cost of goods sold b. everyone who works in the accounting department must have passed the CPA test c. assets must equal liabilities+equity d. cash flow must equal net income

c. assets must equal liabilities+equity

Which of the following items is NOT normally considered to be a current asset? a. Accounts receivable. b. Inventory. c. Bonds. d. Cash. e. Short-term, highly-liquid, marketable securities.

c. bonds

Which of the following statements is CORRECT? a. Corporations generally face fewer regulations than sole proprietorships. b. Corporate shareholders are exposed to unlimited liability. c. It is usually easier to transfer ownership in a corporation than in a partnership. d. Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.

c. it is usually easier to transfer ownership in a corporation than in a partnership

Which of the following statements is correct? a. one disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability b. using restrictive covenants in debt agreements is an effective way to reduce conflicts between stockholders and managers c. managers of established, stable companies sometimes attempt to get their state legislatures to impose rules that make it more difficult for raiders to succeed with hostile takeovers d. managers of established, stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers e. managers generally welcome hostile takeovers since the "raider" generally offers a price for the stock that is higher than the price before the takeover action started

c. managers of established, stable companies sometimes attempt to get their state legislatures to impose rules that make it more difficult for raiders to succeed with hostile takeovers

This type of business has the unlimited liability for the owner of the business a. corporation b. limited liability company c. proprietorship

c. proprietorship

Gross Profit is a. sales minus inventory plus assets b. net income divided by sales c. sales minus cost of goods sold d. earnings before taxes

c. sales minus cost of goods sold

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant a. the TIE declines b. the DSO increases c. the quick ratio increases d. the current ratio declines e. the total assets turnover decreases

c. the quick ratio increases

Faldo Corp sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $435,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? a. 5.18 b. 4.86 c. 5.29 d. 5.34 e. 5.40

d. 435,000/60,000=7.25 365/7.25=50.34 50.34-45=5.34

Your sister is thinking about starting a new business. The company would require $380,000 of assets, and it would be financed entirely with common stock. She will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business? a. $58,482 b. $45,144 c. $52,326 d. $51,300 e. $39,501

d. ROE=net income/total equity 0.135=net income/380,000 net income=51,300

Consider a one-year discount bond that pays $1,500 one year from now. If the rate of discount is 4 percent, the present value of the bond is a. $1,560.00. b. $1,540.00. c. $1,440.00. d. $1,442.31.

d. $1,442.31. 1,500 *.9615

Helmuth Inc's latest net income was $1,250,000, and it had 225,000 shares outstanding. The company wants to pay out 45% of its income. What dividend per share should it declare? a. $2.14 b. $2.26 c. $2.38 d. $2.50 e. $2.63 13.

d. $2.50 1,250,000*0.45=562,500/225,000=2.50

Emery Mining Inc. recently reported $150,000 of sales, $75,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $16,500 of outstanding bonds that carry a 7.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder reporting purposes. a. $35,167.33 b. $37,018.24 c. $38,966.57 d. $41,017.44 e. $43,068.31

d. $41,017.44

You deposit !1,175 today in a savings account that pays 6% interest, compounded annually. How much will your account be worth at the end of 25 years? a. $3,883.07 b.$5,799.39 c.$6,001.11 d.$5,042.95 e.$3,782.21

d. $5,042.95=1,175*1.06^25

Jose now has $500. How much would he have after 6 years if he leaves it invested at 5.0% with annual compounding? a. $515.94 b. $830.86 c. $817.46 d. $670.05 e. $596.34

d. $670.05=500*1.06^6

What is the current ratio for this company? sales=8,000,000 cogs=6,000,000 current assets=1,500,000 current liabilities=1,000,000 net income=500,000 a. 3 b. .67 c. 4 d. 1.5

d. 1.5 current assets/current liabilities

.Ryngard Corp's sales last year were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO)? a. 2.04 b. 2.14 c. 2.26 d. 2.38 e. 2.49

d. 2.38=38/16

A 7-year municipal bond yields 4.8%. Your marginal tax rate (including state and federal taxes) is 27%. What interest rate on a 7-year corporate bond of equal risk would provide you with the same after-tax return? a. 5.64% b. 5.93% c. 6.25% d. 6.58% e. 6.90%

d. 6.58%

Which type of company finds it easiest to raise large amounts of capital? a. Sole Proprietorship b. Subchapter S c. 2 person partnership d. Corporation

d. Corporation

Which of the following statements is CORRECT? Select one: a. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one person, one vote" b. It is easier to transfer one's ownership interest in a partnership than in a corporation. c. One of the advantages of the corporate form of organization is that it avoids double taxation. d. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability

d. One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability

Considered alone, which of the following would increase a company's current ratio? a. an increase in net fixed assets b. an increase in accrued liabilities c. an increase in notes payable d. an increase in accounts receivable e. an increase in accounts payable

d. an increase in accounts receivable

Which of the following items cannot be found on a firm's balance sheet under current liabilities? a. Accounts payable. b. Short-term notes payable to the bank. c. Accrued wages. d. Cost of goods sold. e. Accrued payroll taxes.

d. cost of goods sold

Which of the following statements is correct? a. the more depreciation a firm reports, the higher its tax bill, other things held constant b. people sometimes talk about the firm's cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line" c. depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's cash flow d.. operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes e. depreciation is not a cash charge, so it does not have an effect on a firm's reported profits

d.. operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes

You purchased an option to buy 100 shares of Apple stock at a stock price of $180. The cost of the option was $360. Apple stock is now selling for $165. What is your overall profit/loss on this option?

do not exercise the option, loss is the cost of the option or $360

New Business is just being formed by 10 investors, each of whom will own 10% of the business. The firm is expected to earn $1,000,000 before taxes each year. The corporate tax rate is 34% and the personal tax rate for the firm's investors is 35%. The firm does not need to retain any earnings, so all of its after-tax income will be paid out as dividends to its investors. The investors will have to pay personal taxes on whatever they receive. How much additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation? a. $20,384 b. $20,800 c. $21,225 d. $21,658 e. $22,100

e. $22,100

Garcia Industries has sales of $200,000 and accounts receivable of $18,500, and it gives its customers 25 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0%on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant? a. $241.45 b. $254.16 c. $267.54 d. $281.62 e. $296.44

e. $296.44 sales per day=200,000/365=547.9 per day current DSO=18,500/547.9=33.76 current DSO-ind avg=33.76-27=6.76 value of change=6.76*547.9=3,703.80 3,703.80*0.08=296.30

Rao Construction recently reported $20.50 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What was Rao's operating income, or EBIT, in millions? a. $3.21 b. $3.57 c. $3.97 d. $4.41 e. $4.90

e. $4.90 20.50-12.60-3.00

Last year Rocco Corporation's sales were $725 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later? a. $756.77 b. $1,096.34 c. $1,212.77 d. $921.70 e. $970.21

e. $970.21=725*1.06^5

Precision Aviation had a profit margin of 4.75%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE? a. 14.88% b. 13.59% c. 15.52% d. 13.47% e. 12.83%

e. 12.83%=4.75%*1.5*1.8

Which of the following statements is correct? a. if a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average, and was increasing and trending still higher, this would be interpreted as a sign of strength. b. a high average DSO indicates that none of its customers are paying on time. In addition, it makes no sense to evaluate the firm's DSO with the firm's credit terms c. there is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things d. a reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio e. if a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline

e. if a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline

Which of the following would indicate an improvement in a company's financial position, holding other things constant? a. the inventory and total asset turnover ratios both decline b. the debt ratio increases c. the profit margin declines d. the times-interest-earned ratio declines e. the current and quick ratios both increase

e. the current and quick ratios both increase

Your firm needs 5,000 barrels of Brent crude oil in May 2020. Your firm entered into a futures contract to pay $50 per barrel and the bank charged you $500 to process the future. The cost of Brent Crude in May 2020 is $40 what is the firm's overall profit/loss from this futures contract.

lost $10 per bbl * 5,000 barrels = a loss of $50,000 plus the bank charge of $500 = $50,500 loss on this contract

Your firm needs 5,000 barrels of Brent crude oil in May 2020. Your firm entered into a futures contract to pay $50 per barrel and the bank charged you $500 to process the future. The cost of Brent Crude in May 2020 is $55 what is the firm's overall profit/loss from this futures contract.

saved $5 per bbl of oil * 5,000bbl = $25,000 saving-$500 cost of the future = $24,500 profit