Alan and Sara Winthrop are a married couple who file a joint income tax return. They have two children, so they claim a total of 4 exemptions. In addition, they have legitimate itemized deductions totaling $25,750. Their total income from wages is $300,500. Assume the following tax table is applicable: ? Married Couples Filing Joint Returns ?? ? If Your Taxable Income Is You Pay This Amount on the Base of the Bracket Plus This Percentage on the Excess over the Base Average Tax Rate at Top of Bracket Up to $18,450 $ 0 10.0% 10.0% $18,450-$74,900 1,845.00 15.0 13.8 $74,900-$151,200 10,312.50 25.0 19.4 $151,200-$230,450 29,387.50 28.0 22.4 $230,450-$411,500 51,577.50 33.0 27.1 $411,500-$464,850 111,324.00 35.0 28.0 Over $464,850 129,996.50 39.6 39.6 ? What is their federal tax liability? ? a. $60,916.50 b. ?$62,744.50 c. ?$51,779.00 d. ?$45,687.50 e. $46,906.25 . 5 points Question 25 If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized. True False . 5 points Question 26 In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value." True False . 5 points Question 27 Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. The use of covenants in bond agreements that limit the firms use of additional debt and constrain managers actions. b. Financing risky projects with additional debt. c. Abolishing the Security and Exchange Commission. d. Compensating managers with stock options. e. The threat of hostile takeovers. . 5 points Question 28 Which of the following actions would be likely to encourage a firm's managers to make decisions that are in the best interests of shareholders? a. The firm's board of directors gives the firm's managers greater freedom to take whatever actions they think best without obtaining board approval. b. The percentage of executive compensation that comes in the form of cash is increased and the percentage coming from long-term stock options is reduced. c. The firm's founder, who is also president and chairman of the board, sells 90% of her shares. d. The percentage of the firm's stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%. e. The state legislature passes a law that makes it more difficult to successfully complete a hostile takeover. . 5 points Question 29 The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the world. True False . 5 points Question 30 If a lower level person in a firm does something illegal, like "cooking the books" to understate costs and thereby increase profits above the correct profits because he or she was told to do so by a superior, the lower level person cannot be prosecuted but the superior can be prosecuted. True False . 5 points Question 31 An increase in accounts payable represents an increase in net cash provided by operating activities just like borrowing money from a bank. An increase in accounts payable has an effect similar to taking out a new bank loan. However, these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities. True False . 5 points Question 32 You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of: a. A money market transaction. b. A secondary market transaction. c. An over-the-counter market transaction. d. A primary market transaction. e. A futures market transaction. . 5 points Question 33 Appalachian Airlines began operating in 2011. The company lost money the first year but has been profitable ever since. The companys taxable income (EBT) for its first five years is listed below. Each year the companys corporate tax rate has been 40%. Year Taxable Income 2011 -$5,500,000 2012 $1,000,000 2013 $2,000,000 2014 $3,000,000 2015 $5,000,000 Assume that the company has taken full advantage of the Tax Codes carry-back, carry-forward provisions and that the current provisions were applicable in 2011. How much did the company pay in taxes in 2014? a. $200,000 b. $202,000 c. $160,000 d. $210,000 e. $176,000 . 5 points Question 34 Which of the following statements is CORRECT? a. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. b. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. c. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. d. Corporations face fewer regulations than proprietorships. e. One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. . 5 points Question 35 Which of the following is an example of a capital market instrument? a. U.S. Treasury bills. b. Commercial paper. c. Money market mutual funds. d. Preferred stock. e. Banker's acceptances. . 5 points Question 36 Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers? a. The company changes the way executive stock options are handled, with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period. b. The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company. c. The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash. d. Congress passes a law that severely restricts hostile takeovers. e. A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock. . 5 points Question 37 The NYSE is defined as a "spot" market purely and simply because it has a physical location. The NASDAQ, on the other hand, is not a spot market because it has no one central location. True False . 5 points Question 38 Assume that Besley Golf Equipment commenced operations on January 1, 2015, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2015 management realized that the assets would last for only 10 years. The firm's accountants plan to report the 2015 financial statements based on this new information. How would the new depreciation assumption affect the companys financial statements? a. The firms reported 2015 earnings per share would increase. b. The firms reported net fixed assets would increase. c. The firms EBIT would increase. d. The provision will increase the company's tax payments. e. The firms cash position in 2015 and 2016 would increase. . 5 points Question 39 Which of the following statements is CORRECT? a. A liquid security is a security whose value is derived from the price of some other "underlying" asset. b. Money markets are markets for long-term debt and common stocks. c. While the distinctions are becoming blurred, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. d. Money market mutual funds usually invest their money in a well-diversified portfolio of liquid common stocks. e. The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market. . 5 points Question 40 Which of the following actions would be most likely to reduce potential conflicts between stockholders and bondholders? a. Compensating managers with more stock options and less cash income. b. A government regulation that banned the use of convertible bonds. c. The passage of laws that make it harder for hostile takeovers to succeed. d. The firm begins to use only long-term debt, e.g., debt that matures in 30 years or more, rather than debt that matures in less than one year. e. Including restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders). . 5 points Click Save and Submit to save and submit. Click Save All Answers to save all answers.