FINA 4300 CH. 1

If the company repurchases 10 percent of its shares in the stock market, what will be the new book value of equity if all else remains the same?

JM Case will pay $10 per share for the 50,000 shares (= 0.10 × 500,000) it repurchases. This reduces the book value by $500,000 (= $10 × 50,000). Assuming all else remains the same: New book value per share = ($1,750,000 - $500,000) / (500,000 - 50,000 shares) = $2.78 per share

Stock price per share =

MV/# of shares

A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet

Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million

Book value per share =

Ta-TL = * * / # of shares

A company borrows $2,000,000 and uses the money to purchase high technology machinery for its operations. These are examples of

cash flow from financing and cash flow from investing

Which one of the following is a source of cash

increase in accounts payable

Which of the following items does not belong to operating expenses?

interest expenses These do: depreciation expense, selling and marketing expenses, administrative expenses

The book value of a firm is

largely based on historical cost

Treasury stock is

previously outstanding stock that is bought back from stockholders by the issuing company.

Depreciation expense

reduces both taxes and net income.

California Retailing Inc. has sales of $4,000,000; the firm's cost of goods sold is $2,500,000; and its total operating expenses are $600,000. What is CaliforniaRetailing's EBIT?

4M-2.5M-600K = $900,000

Which of the following statements is true

A reduction in long-term debt is a use of cash

All of the following statements about balance sheets are true EXCEPT

A0 Assets - Liabilities = Shareholders' Equity. B) assets are reported at historical cost. C) balance sheets show average asset balances over a one-year or quarter period. D) an income statement is the summary of revenues and expenses over a year or a quarter.

A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company's balance sheet?

Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000

Tthe financial statement that summarizes a firm's revenue and expenses over a period of time

Income Statement

Shareholder's Equity =

Total Assets - Total Liabilities