FIN 3403 Traditional Quiz 1

Given the nominal interest rate is 10.2% and the real rate of interest of 6.75%, what is the inflation rate premium? (set your calculator to 4 decimal places). (1 + krf) = (1 + k*)(1 + IRP)

3.2%

Last year, your company had sales of $3.6 million, cost of goods sold of $2.3 million and operating expenses amounting to $840,000. The firm had $114,000 in depreciation expense. In addition, the firm paid 8% interest on $625,000 in bonds, received $30,000 in dividend income, and sold property for a $10,000 capital loss. What was the firm's tax payment?

$102,200

What is the tax liability for a corporation with $10,200,000 in taxable income?

$3,470,000

What is the tax liability for a corporation with $10,800,000 in taxable income?

$3,680,000

What is the tax liability for a corporation with $13,100,000 in taxable income?

$4,485,000

What is the tax liability for a corporation with $13,600,000 in taxable income?

$4,660,000

What is the tax liability for a corporation with $17.5 million of taxable income?

$6,100,000

Maximization of shareholder wealth as a goal is superior to profit maximization because ________.

-it considers the time value of money -following the shareholder wealth maximization goal will ensure high stock prices

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $10 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

$6,570,900

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $8 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

$7,270,900

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $6 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

$7,970,900

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $5 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

$8,320,900

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $4 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

$8,670,900

Last year, your company had sales of $2.4 million. The firm's costs of goods sold amounted to 34% of sales. The firm also paid cash operating expenses of $1,200,000, and had $80,500 in depreciation expense. The firm had $450,000 in 9% coupon bonds outstanding and paid $25,000 in dividends to its common stockholders. Also, the firm received $40,000 in dividend income from its holdings of other common stocks. Compute the corporation's tax liability.

$90,500

Given the anticipated inflation rate premium of 3.25% and the real rate of interest of 6.75%, what is the nominal interest rate? (set your calculator to 4 decimal places) (1 + krf) = (1 + k*)(1 + IRP)

10.22%

Given the anticipated inflation rate premium of 4.25% and the real rate of interest of 6.75%, what is the nominal interest rate? (set your calculator to 4 decimal places) (1 + krf) = (1 + k*)(1 + IRP)

11.3%

Which of the following items is NOT included in stockholders' equity?

Bonds

Of the legal forms of organizations discussed in chapter 1, which form of organization has the advantage of limited liability for all owners?

Corporation.

According to our text, which of the following statements is true?

Maximizing shareholder wealth should be the goal of the firm.

Which of the following best describes the goal of the firm?

Maximizing the value of the firm's equity.

If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT?

Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.

What business type is a business owned by individual, therefore subject to a limited life and unlimited liability?

Sole proprietorship.

Which of the following would indicate an improvement in a company's financial position, holding other things constant?

The current and quick ratios both increase.

What distinguishes the money market from the capital market?

The money market deals with short-term instruments, whereas the capital market deals with long-term instruments.

Suppose your firm selects an investment banking firm to assist with your firm's $10 million stock issue. The investment banker will act as a broker and will attempt to sell each new share of stock for a commission for each share sold. This distribution method is referred to as ________.

a best efforts offer

Dividends paid by the firm ________.

are paid out of net income

Dividends received by the firm _______.

are usually 70% excluded from taxation

Net operating losses may be _______.

carried back 2 years or carried forward up to 20 years

Net capital losses may be _______.

carried back 3 years or carried forward up to 5 years

The legal form of business that allows a firm to function separate and apart from its owners is the _________.

corporation

The least liquid current asset is _______.

inventory

Which of the following is NOT a current asset on the balance sheet?

short-term debt

The true owners of a corporation are the _______.

stockholders