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QUESTION 20 Which of the following adds to the owners' equity of a company? 4 points additional equity investment by existing owners equity investment by new investors/owners retained earnings (if positive) all the above QUESTION 21 Steven's Sox Inc has a coverage ratio of 5. Eleanor's Elegant Earrings' coverage ratio is 7. Yet Steve's pays a lower risk premium on its debt than does Eleanor's (for the same maturity). What might explain this? Steve's is in a more volatile industry. Eleanor's is in a more volatile industry. Interest rates are low today. When rates rise, Steven's risk premium will jump Eleanor's. Steven's interest rate is below that of the U.S. Treasury. Eleanor's rate is above. Nothing to explain. A lower coverage ration should result in a lower risk premium. QUESTION 22 A company produces an ROE of 16% this year with Profits after Taxes of $100.000,000. Is it possible for the company to earn more than $ 1 million next year yet produce an ROE below 16%? Yes, if it pays more dividends from the $1 million next year than it does this year. Yes, if the tax rate is higher next year Yes, if the percentage increase in owners equity next year compared to this year exceeds the percentage increase in profits. Of course not! What do you think I am - a fool?!!QUESTION 23 A clothing retailer sold all the clothes it purchased from manufacturers this year at a positive profit margin. No customer paid for the clothes - all were sold "on credit" (until next year). The result is positive profits for zero negative QUESTION 24 Suppose a company enjoys an increase in revenue due entirely to an increase in the price of its product. Which of the following increases as a result? Choose Two, 2 points each variable costs fixed costs after-tax profit profits tax interest expense QUESTION 25 Consider a single cash flow of $220,000 to be paid in ten years and a ten-year annuity paying $20,000 annually for ten years. Suppose both the futurity of the single cash flow and maturity of the annuity are increased to elev happens to their respective present values, assuming unchanged discount rates and yields? 4 points The present value of the single cash flow rises, but that of the annuity declines The present value of the single cash flow declines, but that of the annuity rises The present values of both the single cash flow and the annuity decline The present value of the single cash flow does not change, but that of the annuity rises The present values of both the single cash flow and the annuity riseQUESTION 33 A company's profits decreased this past quarter. Yet it kept its dividend payment the same as last quarter. What happened to its payout ratio? did not change rose fell QUESTION 34 Classy Shoes made $1 million in profits after taxes last year (which it distributed as dividends) on $5 million in revenue by manufacturing and selling 40,000 pairs of shoes. This year it manufactures the same nur cost). But its shoes have become "in," which has allowed it to raise the price per pair without reducing unit sales. Which of the following ratios does not change? Leverage ROE Profit margin Turnover QUESTION 35 ABC Company has cash on its balance sheet. It decides to use the cash to purchase the building it was renting. Compared to the original situation, ABC's leverage ratio is: higher lower unchanged QUESTION 36 The more elastic a company's product (or service), the the likelihood that an increase in price will add to its profit greater less irrelevant to
