1

1. Rhodes Corporation Income Statements	2015	2014
   Sales		$27,500	$25,000
   Operating costs excluding depreciation	$23,400	$21,250
   Depreciation and amortization	$950	$900
   Earnings before interest and taxes	$3,150	$2,850
   Less interest		$300	$250
   Pre-tax income		$2,850	$2,600
   Taxes (40%)		$1,140	$1,040
   Net income available to common stockholders	$1,710	$1,560
   Common dividends		$550	$500
   Rhodes Corporation Balance Sheets	2015	2014
   Assets		2015	2014
   Cash		$1,375	$1,250
   Short-term investments		$275	$250
   Accounts receivable		$6,875	$6,250
   Inventories		$4,125	$3,750
   Total current assets		$12,650	$11,500
   Net plant and equipment		$9,625	$8,750
   Total assets		$22,275	$20,250
   Liabilities and Equity
   Accounts payable		$2,750	$2,500
   Accruals		$1,375	$1,250
   Notes payable		$960	$500
   Total current liabilities		$5,085	$4,250
   Long-term debt		$2,750	$2,500
   Total liabilities		$7,835	$6,750
   Common stock		$10,780	$11,000
   Retained earnings		3,660	$2,500
   Total common equity		$14,440	$13,500
   Total liabilities and equity		$22,275	$20,250

   What is the amount of free cash flow for the year 2015 for Rhodes Corporation?

   		$1,625
   		$106
   		$7,150
   		$265
   		$650

2 points

Question 2

1. An investor recently purchased a corporate bond that yields 7%. The investor is in the 30% combined federal and state tax bracket. What is the bonds after-tax yield?

   		7.00%
   		4.90%
   		30.00%
   		9.00%
   		5.76%

2 points

Question 3

1. Rhodes Corporation Income Statements	2015	2014
   Sales		$27,500	$25,000
   Operating costs excluding depreciation	$23,400	$21,250
   Depreciation and amortization	$950	$900
   Earnings before interest and taxes	$3,150	$2,850
   Less interest		$300	$250
   Pre-tax income		$2,850	$2,600
   Taxes (40%)		$1,140	$1,040
   Net income available to common stockholders	$1,710	$1,560
   Common dividends		$550	$500
   Rhodes Corporation Balance Sheets	2015	2014
   Assets		2015	2014
   Cash		$1,375	$1,250
   Short-term investments		$275	$250
   Accounts receivable		$6,875	$6,250
   Inventories		$4,125	$3,750
   Total current assets		$12,650	$11,500
   Net plant and equipment		$9,625	$8,750
   Total assets		$22,275	$20,250
   Liabilities and Equity
   Accounts payable		$2,750	$2,500
   Accruals		$1,375	$1,250
   Notes payable		$960	$500
   Total current liabilities		$5,085	$4,250
   Long-term debt		$2,750	$2,500
   Total liabilities		$7,835	$6,750
   Common stock		$10,780	$11,000
   Retained earnings		3,660	$2,500
   Total common equity		$14,440	$13,500
   Total liabilities and equity		$22,275	$20,250

   What is the amount of net operating working capital for Rhodes Corporation for the year 2014?

   		$7,500
   		$3,000
   		$11,500
   		$3,300
   		$7,250

2 points

Question 4

1. Rhodes Corporation Income Statements	2015	2014
   Sales		$27,500	$25,000
   Operating costs excluding depreciation	$23,400	$21,250
   Depreciation and amortization	$950	$900
   Earnings before interest and taxes	$3,150	$2,850
   Less interest		$300	$250
   Pre-tax income		$2,850	$2,600
   Taxes (40%)		$1,140	$1,040
   Net income available to common stockholders	$1,710	$1,560
   Common dividends		$550	$500
   Rhodes Corporation Balance Sheets	2015	2014
   Assets		2015	2014
   Cash		$1,375	$1,250
   Short-term investments		$275	$250
   Accounts receivable		$6,875	$6,250
   Inventories		$4,125	$3,750
   Total current assets		$12,650	$11,500
   Net plant and equipment		$9,625	$8,750
   Total assets		$22,275	$20,250
   Liabilities and Equity
   Accounts payable		$2,750	$2,500
   Accruals		$1,375	$1,250
   Notes payable		$960	$500
   Total current liabilities		$5,085	$4,250
   Long-term debt		$2,750	$2,500
   Total liabilities		$7,835	$6,750
   Common stock		$10,780	$11,000
   Retained earnings		3,660	$2,500
   Total common equity		$14,440	$13,500
   Total liabilities and equity		$22,275	$20,250

   What is the amount of total net operating capital for 2015 for Rhodes Coporation?

   		$17,875
   		$7,150
   		$13,500
   		$16,250
   		$13,500

2 points

Question 5

1. Molteni Motors Inc. recently reported $8 million of net income. Its EBIT was $15 million, and its tax rate was 36%. What was its interest expense?

   		$19,000,000
   		$2,500,000
   		$3,000,000
   		$2,880,000
   		$7,000,000

2 points

Question 6

1. Kendall Corners Inc. recently reported net income of $5.2 million and depreciation of $1,500,000. What was its net cash flow? Assume it had no amortization expense.

   		$2,600,000
   		$5,200,000
   		$3,700,000
   		$6,700,000
   		$3,600,000

2 points

Question 7

1. Rhodes Corporation Income Statements	2015	2014
   Sales		$27,500	$25,000
   Operating costs excluding depreciation	$23,400	$21,250
   Depreciation and amortization	$950	$900
   Earnings before interest and taxes	$3,150	$2,850
   Less interest		$300	$250
   Pre-tax income		$2,850	$2,600
   Taxes (40%)		$1,140	$1,040
   Net income available to common stockholders	$1,710	$1,560
   Common dividends		$550	$500
   Rhodes Corporation Balance Sheets	2015	2014
   Assets		2015	2014
   Cash		$1,375	$1,250
   Short-term investments		$275	$250
   Accounts receivable		$6,875	$6,250
   Inventories		$4,125	$3,750
   Total current assets		$12,650	$11,500
   Net plant and equipment		$9,625	$8,750
   Total assets		$22,275	$20,250
   Liabilities and Equity
   Accounts payable		$2,750	$2,500
   Accruals		$1,375	$1,250
   Notes payable		$960	$500
   Total current liabilities		$5,085	$4,250
   Long-term debt		$2,750	$2,500
   Total liabilities		$7,835	$6,750
   Common stock		$10,780	$11,000
   Retained earnings		3,660	$2,500
   Total common equity		$14,440	$13,500
   Total liabilities and equity		$22,275	$20,250

   What is the net operating profit after taxes (NOPAT) for Rhodes Corporation for the year 2015?

   		$1,890
   		$756
   		$1,560
   		$1,260
   		$1,710

2 points

Question 8

1. Corporate bonds issued by Johnson Corporation currently yield 6.4%. Municipal bonds of equal risk currently yield 4.4%. At what tax rate would an investor be indifferent between these two bonds?

   		25.00%
   		31.25%
   		10.80%
   		2.00%
   		35.50%

2 points

Question 9

1. Talbot Enterprises recently reported an EBITDA of $8 million and net income of $4 million. It had $1 million of interest expense, and its corporate tax rate was 36%. What was its charge for depreciation and amortization?

   		$2,000,000
   		$7,000,000
   		$750,000
   		$3,000,000
   		$5,000,000

2 points

Question 10

1. The Talley Corporation had a taxable income of $500,000 from operations after all operating costs but before (1) interest charges of $70,000, (2) dividends received of $80,000, (3) dividends paid of $40,000, and (4) income taxes. How much is the firm's taxable income?

   		$319,500
   		$510,000
   		$414,000
   		$500,000
   		$454,000

2 points

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