1. Toiletry Products, Inc. manufactures diapers. As their target customers age and pass on, sales of the product are expected to increase. Past statistics suggest that earnings and dividends will increase at a rate of 4% annually forever. The firm just paid a dividend of $2.50. Given a required return of 12%, the stock should sell for

a. $10.25 b. $12.50 c. $15.00 d. $16.25 e. $32.50

2. How much are you willing to pay for a stock that is expected to pay a $1.50 dividend in one year if the expected dividend growth rate is 5.5% and you require a 16% return on your investment?

a. $11.54 b. $12.33 c. $12.43 d. $13.14 e. $14.30

3. The preemptive right is important to shareholders because it

a. allows management to sell additional shares below the current market price

b. protects the current shareholders against dilution of ownership interests

c. is included in every corporate charter

d. will result in higher dividends per share

e. the preemptive right is not important to shareholders

4. As a common shareholder in a firm, which of the following allows you to share proportionally in any new stock sold?

a. proxy b. preemptive right c. cumulative voting d. straight voting e. Class B common stock

5. Which of the following is equivalent to the 'balance sheet identity?'

a. Total liabilities minus equity equals total assets

b. Total liabilities plus total assets equals equity

c. Total assets minus total liabilities equals equity

d. Total assets minus long-term debt equals equity

e. Total assets plus equity equals total liabilities

6. Long term debt plus stockholders' equity is sometimes called the firm's

a. equity multiplier b. financial capacity c. long-term solvency d. total market value e. total capitalization

7. A firm has current liabilities of $250, a current ratio of 1.2, and a quick ratio of 0.80. Compute the level of inventory for this firm.

a. $45 b. $50 c. $100 d. $120 e. $200

8. General Motors has 400,000 shares of common stock outstanding, net income after tax of $1.2 million, retained earnings of $17 million, and total equity of $35 million. What is GM's earnings per share?

a. $3.00 b. $4.00 c. $4.25 d. $8.75 e. $13.50

9. Orangeburg Inc. earns net income of $25,000 in a given year and the company retained earnings increase $15,000 for that same year. The payout ratio is

a. 25% b. 40% c. 60% d. 75% e. 100%

10. You are given the following information: Stockholders equity = $1,250; price/earnings ratio = 5; shares outstanding = 25; market/book ratio = 1.5. Calculate the market price of a share of the companys stock.

a. $ 33.33 b. $ 75.00 c. $ 10.00 d. $166.67 e. $133.32

11. Assume Meyer Corporation is 100 percent equity financed (total debt = 0). Calculate the return on equity, given the following information:

• Earnings before taxes = $1,500
• Sales = $5,000
• Dividend payout ratio = 60%
• Total Assets turnover = 2.0
• Tax rate = 30%

a. 25% b. 30% c. 35% d. 42% e. 50%

12. Manufacturers Inc. estimates that its interest charges for this year will be $700 and its net income will be $3,000. Assuming its average tax rate is 30 percent, what is the companys estimated times interest earned ratio?

a. 2.40 b. 4.25 c. 5.33 d. 7.12 e. 7.75

13. Last year, Quayle Energy had sales of $200 million and its inventory turnover ratio was 5.0. The companys current assets totaled $100 million and its current ratio was 1.2. What was the companys quick ratio?

a. 1.20 b. 1.39 c. 0.72 d. 0.55

Q14. Your broker offers to sell you some shares of Van-Kam common stock that paid a dividend of $2 yesterday. You expect the dividend to grow at the rate of 5 percent per year for the next 3 years, and, if you buy the stock, you plan to hold it for 3 years and then sell it.

a. Find the expected dividend for each of the next 3 years; that is, find D₁, D₂, D₃. Note D₀ = $2.00.

b. Given that the appropriate discount rate is 12 percent and that the first of these dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PV of D1, D2, D3 and then sum these PVs

c. If you plan to buy the stock, hold it for 3 years, and then sell it for $34.73, what is the most you should pay for it?

d. Calculate the present value of this stockassume g = 5% and is constant

15. During the year 2005, IBM Company had sales of $10,000, cost of goods sold of 4000, depreciation of $1000, and interest paid of $1500. Using a 25% corporate tax rate, and assuming all taxes are paid the year they are due, construct IBMs income statement for year 2005. Prepare an income statement for this companyfollow the GAAP rule. Given a retention ratio of 40%, what is the total dividend and amount retained for reinvestment?