10. Gerona Company has $32,000,000 of sales, $17.500,000 of operating 5 points costs (excluding depreciation), and $5,000,000 of depreciation. It has $9,000,000 of bonds outstanding that carry a 6% interest rate, and its federal-plus-state income tax rate is 40%. What is the amount of the company's operating income? * $3,797,840 $5,376,000 $9,500,000 $14,500,000 None of the above 11. Poroma Company has $720,000 of assets (which equal total invested capital), and it uses no debt; it is financed only with common equity. The new CFO wants to employ enough debt to raise the total-debt-to-total- capital ratio to 30%, using the proceeds from borrowing to buy back common stock at its book value. What is the amount that the firm has to borrow to achieve the target total-debt-to-total-capital ratio? * $216,000 $504,000 $1,028,571 $2,400,000 None of the above 5 points 12. Cano Corporation has $400,000,000 of common equity, with 9,000,000 shares of common stock outstanding. If the market value added (MVA) is $185,000,000, what is the corporation's stock price? * O $20.56 O $23.89 O $44.44 O $65.00 O None of the above 13. Last year, Saran Company has $13,400,000 of sales, $7,300,000 of operating costs (excluding depreciation) and $1,000,000 of depreciation. The company has $6,500,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate is 35%. During last year, the firm has expenditures on fixed assets and net operating working capital that total $2.000.000. These expenditures are necessary for it to sustain operations and generate future sales and cash flows. This year's data are expected to remain unchanged except for one item. depreciation, which is expected to increase by $750.000. The company uses the same depreciation calculations for tax and stockholder reporting purposes. What is the effect of the change in depreciation on the net income and the free cash flow? 0 The net income will decrease by $487.500, and the free cash flow will increase by The net income will decrease by $750,000 and the free cash flow will decrease by The net income will decrease by $1 625,750, and the free cash flow wilincrease to The net income will decrease by $2.531,750, and the free e ash flow will deorease to $2.577500 14. The sales of Fiery Corporation for last year are $300,000, and its year- 6 points end total assets are $450,000. The industry average of total assets turnover ratio (TATO) is 2.5. The new CFO believes that the corporation has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much should the assets be reduced to bring the TATO to the industry average, holding sales constant? * O $120,000 $180.000 $330.000 $750,000 O None of the above 15. Pilon Company has sales of $800.000 during last year, operating costs 2015 of $570,000, and year-end assets (which are equal to its total invested capital) of $435.000. The debt-to-total-capital ratio is 17%, the interest rate on the debt is 7.5. and the firm's tax rate is 40%. The new CEO wants to see how the return on common equity (ROE) may be affected if the firm has used a 50% debt-to-total-capital ratio. Assume that sales. operating costs, total assets, total invested capital, and the tax rate will not be affected, but the interest rate will rise to 8%. By how much will the ROE change in response to the change in the capital structure? Do not round your intermediate calculations. O 21.355 37.305 0 58.659 None of the above 16. Olin Company has the following liabilities at the end of last year: Notes 7 points payable of $40,000, accounts payable of $20,000, salaries payable of $8,000, taxes payable of $7,000, bonds payable of $40,000, and long- term loans of $25,000. Besides, the return on total assets (ROA) is 15%. and the debt-to-total-capital ratio is 40%. What is the amount of total assets at the end of last year? * $105,000 $157,500 O $297,500 $350.000 None of the above 17. Silver Company and Gold Company have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on their debt. Both firms finance using only debt and common equity, and total assets equal total invested capital. However. Gold Company has a higher total-debt-to-total-capital ratio. Which of the following statements is correct? O Given this information Silver Company must have the higher ROE. 0 0 Gold Company has a higher basic earning power ratio (BEP). If the interest rate that the companies pay on their debt is less than ther basie earning power (BEP), then Gold Company will have the nigner return on common equity ROE If the interest rate that the companies pay on their debt is more than their basie o earning power (BEP), then Gelo Company will have the higher return on common None of the above