B. All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code. C. Small corporations that qualify under the Tax Code can elect not to pay corporate taxes, but then each stockholder must report his or her pro rata shares of the firm's income as personal income and pay taxes on that income, D. Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that low, corporate income was subject to double taxation, where the firm was first taxed on the corporation's income and stockholders were taxed again on this income when it was paid to them as dividends. E. All corporations other than non-profits are subject to corporate income taxes, which are 15% for the lowest amounts of income and 38% for the highest income amounts. (3-2) Balance sheet 32. Bauer Software's current balance sheet shows total common equity of $5,125,000. The company has 530,000 shares of stock outstanding, and they sell at a price of $27.50 per share. By how much do the firm's market and book values per share differ? A. $17.83 B. $18.72 C. $19.66 D. $20.64 E $21.67 (3-3) Income statement 33 Brown Office Supplies recently reported $15.500 of sales. $8.250 of operating costs other than depreciation, and $1.750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40% How much was the firm's earnings before taxes (ET) A $4.627 B. $4.870 C. $5.114 D. 55.369 E. 55,638 (3-8) MVA Hayes Corporation has $300 million of common equity, with 6 million shares of common stock outstandingIf Hayes Market Value Added (MVA) is $162 million, what is the company's stock price? A $66.02 B. $69.49 C$73.15 D. 577.00 E $80.85 (3-9) Corporate taxes Your corporation has the following cash flows Operating income Interest received Interest paid Dividends received Dividends paid $250,000 $ 10,000 $ 45,000 $ 20,000 $50,000 If the applicable income tax rate is 40% (federal and state combined), and if 70% of dividends received are exempt from taxes, what is the corporation's tax liability! A. $ 83,980 B $88,400 C.$ 92,820 D. S 97.461 E. $102,334 (3-9) Carry-back, carry-forward 36, Appalachian Airlines began operating in 2008. The company lost money the first year but has been profitable ever since. The company's taxable income (EBT) for its first five years is listed below. Each year the company's corporate tax rate has been 40% Year 2008 2009 2010 2011 2012 Taxable Income $4,000,000 $1,000,000 $2,000,000 $3,000,000 $5,000,000 Assume that the company has taken full advantage of the Tax Code's carry-back, carry-forward provisions and that the current provisions were applicable in 2008. How much did the company pay in taxes in 20119 A. $688.500 B. $765,000 C. $ 800,000 DS 930,000 F $1,023,000 (4-2) Liquidity ration 37. The current and quick ratios both help us measure a firm's liquidity. The current ratio measures the relationship of the firm's current assets to its current liabilities, while the quick ratio measures the firm's ability to pay off short-term obligations without relying on the sale of inventories A True B False (4-6) PE ratio 38. The price learnings (PE) ratio tells us how much investors are willing to pay for a dollar of current camnings. In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher prowth in the future A True B False ( (4-9) Trend analysis 39. Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one method of examining changes in a fim's performance over time A True B. False ) (4-10) Window dressing 40. Which of the following statements is CORRECT? A. Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of "window dressing." Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of "window dressing." B. Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of "window dressing." C. Offering discounts to customers who pay with cash rather than buyon credit and then using the funds that come in quicker to purchase fixed assets is an example of window dressing." D. Using some of the firm's cash to reduce long-term debt is an example of window dressing" E. "Window dressing" is any action that does not improve a firm's fundamental long-run position and thus increases its intrinsic value (4-3) Total assets turnover 41. Ryngard Corp's sales last year were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO A 2.04 B. 2.14 C. 2.26 D. 2.38 E 2.49 (4-4) Times interest earned 42. Ajax Corp's sales last year were 5435,000, its operating costs were $362.500, and its interest charges were 512,500. What was the firm's times interest-cared (TIE) ratio? A 4.72 B4.97 C 5.23 D. 5.51 E 5.80 (4-5) Profit margin 43. Royce Corp's sales last year were $280,000, and its net income was $23.000. What was its profit margin? A. 7.419 B 7.80% C: 8.219 D. 8.63% E 9.06% ( >(4-5) Return on total assets 44. River Corp's total assets at the end of last year were 5415.000 and its net income was $32,750. What was its retum on total assets? A 7.89% B 8.29% C. 8.70% D. 9.14%E9.594 (4-5) Return on equity 45. Zero Corp's total common equity at the end of last year was $405,000 and its net income was 570,000 What was ROET A 14.82 15.60% C.16.42% D. 17.28% E 18.15% (4-6) Price Earnings ratio 46. Song Corps stock price at the end of last year was 523 50 and its earning per share for the year were SIJO, What was its P/E ratio A 1717 B. 18.08 C 18.98 D. 19.93 E 20.93 (4-6) Market Book ratio 47. Mogland Corps stock price at the end of last year was $33.50, and its book value per share was $25.00 What was its market book ratio? A. 1.34 B 141 C. 148 D. 1.55 E 163 ) (4-7) DuPont equation 48. Precision Aviation had a profit margin of 62, a total assets turnover of 1.5, and an equity multiplier of 1.& What was the firm's ROE? A 15.23% B. 16.03% C. 16,88% D. 17.72% E 18.60% (5-2) Compounding 49. Surting to invest Garly for retirement increases the benefits of compound interest A True B False (56) Anssities 50. Which of the following statement is CORRECT? A. The cash flows for an ordinary for deferred) annuity allow the beginning of the periods B. If a series of nequal cash flows centres intervals, such as once a you, then there is by definition C. The cash flows for any demost all the end of the periode D. The cash flows for an annuity must all the equal, and they must occur reglur interval once a year or once a month E. If some cash flows occur at the beginning of the periode while others occur at the end, then we have what the textbook defines as cable > (5-2) PV alalump 51. Sue now has $125. How much would she have after years if she leaves it invested at 25% with annual compounding A. 5205.83 B$216.67 Cs228.07 D. $240.08 252.08 1154) Finding! 32. Suppose the U.5. Treasury offers to sell you abond for $749.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate would you can if you bought this hoed at the offer price! L 6.60% 4 45. B 4 86 + C 3 4 5 6 7% (559) Pinding N 3. Bob has 32.500 invested in a bunk that pays 4% annually. How long will it take for his funds to A 14.39 15.15 C 15.95 D. 16,79 E 17.67 165-7) PV of ordinary out You want to buy a new ski bout 2 years from now, and you plan to save $8.200 per year, beginning one year from today You will deposit your savings in an account that pays 6.2% interest. How much will you have just after you make the 2nd deposit. 2 years from now? A $15.360 B $16,063 C$16,908 D. 517,754 E$18.642 (5-8) FV of buity due s you want to quit your job and retum to school for an MBA degree 3 years from now, and you plan to $7,000 per year, beginning immediately. You will make 3 deposits in an account that pays 5.2% interest. Under these assumptions, how much will you have 3 years from today? A 520,993 B. $22,098 C. $23.261 D. $24,424 E $25,645 (5-9) PV of ordinary annuity 56. You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of ench year for 20 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the annuity? A $50,753 B. 553,424 C556.236 D$39,195 E$62,311 (5-11) PV of perpetuity 57. What's the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5% A $4,750 B. $5,000 C55.250 D$5,513 E $5,788 >(5-9) PV of ord. ann. & end. pet. 58. What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%? A 58,509 B. $8.957 CS 9,428 D.$ 9,924 E $10.446 (5-12) PV of even cash flows 59. What is the present value of the following cash flow stream at a rate of 12.0%? Years 0 1 3 4 CES: 50 $1,500 53,000 $4.500 $6,000 A $ 9,699 B$10,210 C$10.747 D. $11.284 E $11,849 ( (5-18) Amortization: payment 60. Suppose you borrowed $12.000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be? A 53,704.02 B 53.889.23 CS4,083.69 D.S4.287.87 E. $4.502.26