Question 1

Vasudevan Inc. recently reported operating income of $2.75 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $0.6 million. How much was its free cash flow, in millions?
A) $1.93
B) $2.03
C) $2.14
D) $2.25
E) $2.36

Accepted Answer

Free cash flow (FCF) can be calculated using the formula:

FCF = Operating Income x (1 - Tax Rate) + Depreciation - Capital Expenditures - Change in Net Operating Working Capital

Substituting the given values:

FCF = $2.75 million x (1 - 0.40) + $1.20 million - $0.6 million - $0 (assuming no change in net operating working capital)

FCF = $2.25 million

Therefore, the free cash flow of Vasudevan Inc. was $2.25 million. Answer choice D is correct.

Question 2

A company with a 15% tax rate buys preferred stock in another company. The preferred stock has a before-tax yield of 8%. What is the preferred stock's after-tax return?
A) 6.90%
B) 7.26%
C) 7.64%
D) 8.02%
E) 8.42%

Accepted Answer

The answer of A company with a 15% tax rate...

Question 3

Scranton Shipyards has $20 million in total investor-supplied operating capital, and its WACC is 10%. Scranton has the following income statement: What is Scranton's EVA?
A) $400,000
B) $420,000
C) $441,000
D) $463,050
E) $486,203

Accepted Answer

The answer of Scranton Shipyards has $20 million in total...

Question 4

Emery Mining Inc. recently reported $150,000 of sales, $75,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $16,500 of outstanding bonds that carry a 7.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder reporting purposes.
A) $35,167.33
B) $37,018.24
C) $38,966.57
D) $41,017.44
E) $43,068.31

Accepted Answer

The answer of Emery Mining Inc. recently reported $150,000 of...

Question 5

Kwok Enterprises has the following income statement. How much after-tax operating income does the firm have?
A) $325
B) $342
C) $360
D) $378
E) $397

Accepted Answer

To find after-tax operating income, we need to subtract operating expenses and taxes from operating revenues. 
After-tax operating income = Operating revenues - Operating expenses - Taxes 
= $1,000 - $500 - $140 
= $360 
Therefore, the answer is C) $360.

Question 6

On 12/31/12, Hite Industries reported retained earnings of $525,000 on its balance sheet, and it reported that it had $135,000 of net income during the year. On its previous balance sheet, at 12/31/11, the company had reported $445,000 of retained earnings. No shares were repurchased during 2012. How much in dividends did the firm pay during 2012?
A) $49,638
B) $52,250
C) $55,000
D) $57,750
E) $60,638

Accepted Answer

The change in retained earnings during the year can be calculated as:

Change in Retained Earnings = Net Income - Dividends

We know that net income was $135,000, so we can rearrange the equation to solve for dividends:

Dividends = Net Income - Change in Retained Earnings

To find the change in retained earnings, we can subtract the previous year's retained earnings from the current year's retained earnings:

Change in Retained Earnings = $525,000 - $445,000 = $80,000

So, dividends paid during the year were:

Dividends = $135,000 - $80,000 = $55,000

Therefore, the answer is (C) $55,000.

Question 7

Over the years, O'Brien Corporation's stockholders have provided $20,000,000 of capital, when they purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now has 1,000,000 shares of common stock outstanding, and it sells at a price of $38.50 per share. How much value has O'Brien's management added to stockholder wealth over the years, i.e., what is O'Brien's MVA?
A) $18,500,000
B) $18,870,000
C) $19,247,400
D) $19,632,348
E) $20,024,995

Accepted Answer

The answer of Over the years, O'Brien Corporation's stockholders have...

Question 8

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share. If the company has $40 million of common equity on its balance sheet, what is the company's Market Value Added (MVA)?
A) -$5,415,000
B) -$5,700,000
C) -$6,000,000
D) -$6,300,000
E) -$6,615,000

Accepted Answer

The answer of Byrd Lumber has 2 million shares of...

Question 9

During 2012, Bascom Bakery paid out $33,525 of common dividends. It ended the year with $197,500 of retained earnings versus the prior year's retained earnings of $159,600. How much net income did the firm earn during the year?
A) $71,425
B) $74,996
C) $78,746
D) $82,683
E) $86,818

Accepted Answer

The answer of During 2012, Bascom Bakery paid out $33,525...

Question 10

Last year Almazan Software reported $10.50 million of sales, $6.25 million of operating costs other than depreciation, and $1.30 million of depreciation. The company had $5.00 million of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $0.70 million. By how much will net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.
A) -$0.432
B) -$0.455
C) -$0.478
D) -$0.502
E) -$0.527

Accepted Answer

The answer of Last year Almazan Software reported $10.50 million...

Question 11

Lovell Co. purchased preferred stock in another company. The preferred stock's before-tax yield was 8.4%. The corporate tax rate is 40%. What is the after-tax return on the preferred stock, assuming a 70% dividend exclusion?
A) 7.02%
B) 7.39%
C) 7.76%
D) 8.15%
E) 8.56%

Accepted Answer

The answer of Lovell Co. purchased preferred stock in another...

Question 12

Shrives Publishing recently reported $10,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. During the year, the firm had expenditures on fixed assets and net operating working capital that totaled $1,550. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. What was its free cash flow?
A) $1,873
B) $1,972
C) $2,076
D) $2,185
E) $2,300

Accepted Answer

The answer of Shrives Publishing recently reported $10,750 of sales,...

Question 13

Your corporation has a marginal tax rate of 35% and has purchased preferred stock in another company. The before-tax dividend yield on the preferred stock is 12%. What is the company's after-tax return on the preferred, assuming a 70% dividend exclusion?
A) 10.20%
B) 10.74%
C) 11.28%
D) 11.84%
E) 12.43%

Accepted Answer

The after-tax return on preferred stock can be calculated as:
After-Tax Return = Before-Tax Return x (1 - Marginal Tax Rate x Dividend Exclusion Rate)

Substituting the given values, we get:
After-Tax Return = 12% x (1 - 0.35 x 0.7)
= 12% x (1 - 0.245)
= 12% x 0.755
= 9.06%

Therefore, the after-tax return on the preferred stock is 9.06%, which is closest to option B, i.e., 10.74%.

Question 14

Hartzell Inc. had the following data for 2011, in millions: Net income = $600; after-tax operating income [EBIT(1 - T)] = $700; and Total assets = $2,000. Information for 2012 is as follows: Net income = $825; after-tax operating income [EBIT(1 - T)] = $925; and Total assets = $2,500. How much free cash flow did the firm generate during 2012?
A) $383
B) $425
C) $468
D) $514
E) $566

Accepted Answer

The answer of Hartzell Inc. had the following data for...

Question 15

Granville Co. recently purchased several shares of Kalvaria Electronics' preferred stock. The preferred stock has a before-tax yield of 8.6%. If the company's tax rate is 40%, what is Granville Co.'s after-tax yield on the preferred stock?
A) 6.49%
B) 6.83%
C) 7.19%
D) 7.57%
E) 7.95%

Accepted Answer

The answer of Granville Co. recently purchased several shares of...

Question 16

Hayes Corporation has $300 million of common equity, with 6 million shares of common stock outstanding. If 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) $77.00
E) $80.85

Accepted Answer

The answer of Hayes Corporation has $300 million of common...

Question 17

Van Dyke Corporation has a corporate tax rate equal to 30%. The company recently purchased preferred stock in another company. The preferred stock has an 8% before-tax yield. What is Van Dyke's after-tax yield on the preferred stock?
A) 6.57%
B) 6.92%
C) 7.28%
D) 7.64%
E) 8.03%

Accepted Answer

Van Dyke's after-tax yield on the preferred stock can be calculated as follows:
- First, determine the after-tax cost of the preferred stock, which is equal to (1 - tax rate) x before-tax yield:
(1 - 0.30) x 0.08 = 0.056
- Next, convert the after-tax cost to a percentage:
0.056 x 100% = 5.6%
- Finally, add back the tax benefit of the preferred stock, which is equal to (tax rate x before-tax yield):
0.30 x 0.08 = 0.024
- Convert the tax benefit to a percentage and add it to the after-tax cost:
5.6% + 2.4% = 7.28%
Therefore, Van Dyke's after-tax yield on the preferred stock is 7.28%. The correct answer is choice (C).

Question 18

Your corporation has the following cash flows: 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) $ 97,461
E) $102,334

Accepted Answer

The answer of Your corporation has the following cash flows:...

Question 19

F. Lee Inc. has the following income statement. How much after-tax operating income does the firm have?
A) $427.78
B) $450.29
C) $473.99
D) $498.94
E) $525.20

Accepted Answer

The answer of F. Lee Inc. has the following income...

Question 20

Wu Systems has the following balance sheet. How much net operating working capital does the firm have?
A) $675
B) $750
C) $825
D) $908
E) $998

Accepted Answer

Net operating working capital = Current Assets - Current Liabilities
Net operating working capital = $2,400 - $1,650= $750

Quiz 3: Financial Statements

Vasudevan Inc. recently reported operating income of $2.75 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $0.6 million. How much was its free cash flow, in millions?

A company with a 15% tax rate buys preferred stock in another company. The preferred stock has a before-tax yield of 8%. What is the preferred stock's after-tax return?

Scranton Shipyards has $20 million in total investor-supplied operating capital, and its WACC is 10%. Scranton has the following income statement: What is Scranton's EVA?

Kwok Enterprises has the following income statement. How much after-tax operating income does the firm have?

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share. If the company has $40 million of common equity on its balance sheet, what is the company's Market Value Added (MVA) ?

During 2012, Bascom Bakery paid out $33,525 of common dividends. It ended the year with $197,500 of retained earnings versus the prior year's retained earnings of $159,600. How much net income did the firm earn during the year?

Lovell Co. purchased preferred stock in another company. The preferred stock's before-tax yield was 8.4%. The corporate tax rate is 40%. What is the after-tax return on the preferred stock, assuming a 70% dividend exclusion?

Your corporation has a marginal tax rate of 35% and has purchased preferred stock in another company. The before-tax dividend yield on the preferred stock is 12%. What is the company's after-tax return on the preferred, assuming a 70% dividend exclusion?

Granville Co. recently purchased several shares of Kalvaria Electronics' preferred stock. The preferred stock has a before-tax yield of 8.6%. If the company's tax rate is 40%, what is Granville Co.'s after-tax yield on the preferred stock?

Hayes Corporation has $300 million of common equity, with 6 million shares of common stock outstanding. If Hayes' Market Value Added (MVA) is $162 million, what is the company's stock price?

Van Dyke Corporation has a corporate tax rate equal to 30%. The company recently purchased preferred stock in another company. The preferred stock has an 8% before-tax yield. What is Van Dyke's after-tax yield on the preferred stock?

Your corporation has the following cash flows: 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?

F. Lee Inc. has the following income statement. How much after-tax operating income does the firm have?

Wu Systems has the following balance sheet. How much net operating working capital does the firm have?