8:11 Done FINC_3310_hw_1 Corporate Finance HW 1 Choose the correct answer and discuss why 2 other options are incorrect in a few words or sentences: 1. Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. Il Double taxation III. Ability to raise capital. IV. Unlimited firm life. a.) I and II only. b) III and IV only c.) I, III, and IV only, d.) II, III, and IV only. e.) I, II, III, and IV 2. A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: a.) General partner. b.) Sole proprietor c.) Limited partner. d.) Corporate shareholder. e.) Zero partner 3. Which one of the following statements is correct concerning the NYSE? a.) The publicly traded shares of a NYSE-listed firm must be worth at least 250 million b.) The NYSE is the largest dealer market for listed securities in the United States. c.) The listing requirements for the NYSE are more stringent than those of NASDAQ. d.) Any corporation desiring to be listed on the NYSE can do so for a fee. c.) The NYSE is an OTC market functioning as both a primary and a secondary market. 4. Which one of the following actions by a financial manager is most apt to create an agency problem? a.) Refusing to borrow money when doing so will create losses for the firm. b.) Refusing to lower selling prices if doing so will reduce the net profits. c.) Refusing to expand the company if doing so will lower the value of the equity d.) Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. c.) Increasing current profits when doing so lowers the value of the firm's equity. 8:12 Done FINC_3310_hw_1 5. A stakeholder is: a.) A person who owns shares of stock. b.) Any person who has voting rights based on stock ownership of a corporation c.) A person who initially founded a firm and currently has management control over that firm. d.) A creditor to whom a firm currently owes money. c.) Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm 6. Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes I. Compensation based on the value of the stock. II. Stock option plans. III. Threat of a company takeover. IV. Threat of a proxy fight. a.) I and II only. b.) III and IV only. c.) I, II, and III only d.) I, III and IV only. c.) I, II, III, and IV 7. The 2008 balance sheet of Saddle Creck, Inc., showed current assets of $1,390 and current liabilities of 5880. The 2009 balance sheet showed current assets of $1,680 and current liabilities of $1,040. What was the company's 2009 change in net working capital, or NWC? a.) S-240 b.) S130 c) $450 d.) S-450 c.) $2,050 Change in NWC = NWCend-NWCbeg Change in NWC-(CAend - CLend)-(CAbeg-CLbeg) 8. Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $7.4 million. The machinery can be sold to the Romulans today for $4.15 million. Klingon's current balance sheet shows net fixed assets of $3.45 million, current liabilities of $1.6 million, and networking capital of $540,000. If all the current assets were liquidated today, the company would receive $1.3 million cash. Calculate the Book Value and Market Value of current assets and net fixed assets. 9. Penguin Pucks, Inc., has current assets of $4,200, net fixed assets of $19,500.c.a liabilities of 3.700 and long-term 8:12 Done FINC_3310_hw_1 9. Penguin Pucks, Inc., has current assets of S4.200.net fixed assets of $19.500, current liabilities of S3,700, and long-term debt of $7,000 a.) Calculate Shareholder Equity b.) Calculate NWC: 10. A company has sales of $729,000, costs of $355,000 depreciation expense of $50,000, interest expense of $28.000 and a tax rate of 35 percent. If the firm paid out $71,000 in cash dividends. Net Income was $192,400. What is the addition to retained earnings? 11. The 2008 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.25 million, and the 2009 balance sheet showed long-term debt of S4 million. The 2009 income statement showed an interest expense of $330.000. What was the firm's cash flow to creditors during 2009? 12. NewOne, Inc., has sales of $554.000, costs of $255.000 depreciation expense of $49,000, interest expense of $21.000 and a tax rate of 40 percent. What is the net income for firm? 13. New Ambitions Corp. shows the following information on its 2009 income statement: sales - $205,000: costs = $100,000 other expenses - S6,400, depreciation expense-59.100, interest expense - S12,900; taxes - $26,810; dividends - $9,600. In addition, you're told that the firm issued $8,000 in new equity during 2009 and redeemed S9,600 in outstanding long-term debt. a.) What is the 2009 operating cash flow? b.) What is the 2009 cash flow to creditors? c.) What is the 2009 cash flow to stockholders? d.) If net fixed assets increased by $27,000 during the year, what was the addition to NWC? 14. NewOne Inc., has sales of $709,000, costs of $385,000, depreciation expense of $51,000, interest expense of $21.000 and a tax rate of 30 percent. The firm paid out S103,000 in cash dividends and has 25.000 shares of common stock outstanding Calculate EPS and 8:12 Done FINC_3310_hw_1 15. The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $920,000 in the common stock account and $6.15 million in the additional paid-in surplus account. The 2009 balance sheet showed $895,000 and $7.8 million in the same two accounts, respectively. If the company paid out $620,000 in cash dividends during 2009, What was the cash flow to stockholders for the year? Remember: Cash flow to stockholders - Dividends paid - Net new equity Cash flow to stockholders Dividends paid - [(Common end + APIS end) - (Common beg + APIS beg) 16. Determine the common stock for Bertinelli Corp. based on the following information: cash = $250,000; patents and copyrights = $720,000; accounts payable = $430,000, accounts receivable = $159,000; tangible net fixed assets = $4,300,000; inventory = $365,000, notes payable - $170,000, accumulated retained earnings $1,245,000; long-term debt - $1,630,000 Remember: Total liabilities and owners' equity is: TL & OE-CL+LTD + Common stock + Retained earnings 17. The 2008 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.15 million, and the 2009 balance sheet showed long-term debt of $3.35 million. The 2009 income statement showed an interest expense of $330,000. What was the firm's cash flow to creditors during 2009