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1A bond issued by the State of Pennsylvania provides a 7% yield. What yield on a Synthetic Chemical Company bond would cause the two bonds to provide the same after-tax rate of return to an investor in the 35% tax bracket? A. 11.42% B. 8.29% C. 10.77% D. 11.09%

E. 8.18%

2. On 12/31/08, Hite Industries reported retained earnings of $502,500 on its balance sheet, and it reported that it had $135,000 of net income during the year. On its previous balance sheet, at 12/31/07, the company had reported $445,000 of retained earnings. No shares were repurchased during 2008. How much in dividends did the firm pay during 2008? A. $78,275 B. $89,125 C. $83,700 D. $96,100 E. $77,500

3. Granville Co. recently purchased several shares of Kalvaria Electronics preferred stock. The preferred stock has a before-tax yield of 7.6%. If the companys tax rate is 25%, what is Granville Co.s after-tax yield on the preferred stock? A. 8.79% B. 7.03% C. 8.72% D. 6.26% E. 7.24%

4. Griffey Communications recently realized $110,000 in operating income. The company had interest income of $25,000 and realized $70,000 in dividend income. The companys interest expense was $40,000.Using the corporate tax schedule above, what is Griffeys tax liability?

Taxable Income Tax on Base of Bracket Percentage on Excess above Base Up to $50,000 $0 15% $50,000-$75,000 7,500 25 $75,000-$100,000 13,750 34 $100,000-$335,000 22,250 39 $335,000-$10,000,000 113,900 34 $10,000,000-$15,000,000 3,400,000 35 $15,000,000-$18,333,333 5,150,000 38 Over $18,333,333 6,416,667 35

A. $28,775 B. $23,362 C. $28,490 D. $29,345 E. $30,199

5. A firms new president wants to strengthen the companys financial position. Which of the following actions would make it FINANCIALLY stronger? A. Increase accounts receivable while holding sales constant. B. Increase EBIT while holding sales and assets constant. C. Increase accounts payable while holding sales constant. D. Increase notes payable while holding sales constant. E. Increase inventories while holding sales constant.

6. Which of the following statements is CORRECT? A. Suppose a firms total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will increase. B. Suppose a firms total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Without additional information, we cannot tell what will happen to the ROE. C. The DuPont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE. D. Other things held constant, an increase in the debt ratio will result in an increase in the profit margin. E. Suppose a firms total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%. Under these conditions, the ROE will decrease.

7. Which of the following statements is CORRECT? A. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio. B. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE. C. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio. D. An increase in the DSO, other things held constant, could be expected to increase the ROE. E. An increase in a firms debt ratio, with no changes in its sales or operating costs, could be expected to lower its net profit margin.

8. Wie Corp's sales last year were $365,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? A. $202,917 B. $221,179 C. $213,063 D. $160,304 E. $184,654

9. Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $520,000, and its net income was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15.0%. What profit margin would the firm need in order to achieve the 15% ROE, holding everything else constant? A. 10.71% B. 9.41% C. 10.82% D. 8.11% E. 12.66%