Question 1

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 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

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 = ($1,950 + $750 + $200) - ($1,700 + $300)
Net operating working capital = $2,900 - $2,000
Net operating working capital = $900
Therefore, the closest option to $900 is B, which is $750.

Question 4

During 2011, 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 net income can be calculated using the formula: Net Income = (Ending Retained Earnings - Beginning Retained Earnings) + Dividends Paid. So, Net Income = ($197,500 - $159,600) + $33,525 = $37,900 + $33,525 = $71,425.

Question 5

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

EVA (Economic Value Added) is calculated as NOPAT - (WACC * Capital). Assuming NOPAT is not provided, we use the given WACC (10%) and capital ($20 million) to find the cost of capital: 0.10 * $20 million = $2 million. If NOPAT is $2.4 million (implied from the choices), then EVA = $2.4 million - $2 million = $400,000.

Question 6

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

The answer of Van Dyke Corporation has a corporate tax...

Question 7

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 8

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 9

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 10

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 calculate after-tax operating income, we need to subtract the operating expenses and the taxes from the total operating revenue. So,

After-tax operating income = Total operating revenue - Operating expenses - Taxes
= $800 - $360 - ($800 x 0.3)
= $800 - $360 - $240
= $200

Therefore, the answer is C) $360.

Question 11

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 12

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 13

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 14

Hartzell Inc. had the following data for 2010, in millions: Net income = $600; after-tax operating income [EBIT(1 - T)] = $700; and Total assets = $2,000. Information for 2011 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 2011?
A) $383
B) $425
C) $468
D) $514
E) $566

Accepted Answer

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

Question 15

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 (EBT)?
A) $4,627
B) $4,870
C) $5,114
D) $5,369
E) $5,638

Accepted Answer

The answer of Brown Office Supplies recently reported $15,500 of...

Question 16

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 17

On 12/31/11, 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 12/31/10, the company had reported $445,000 of retained earnings. No shares were repurchased during 2011. How much in dividends did the firm pay during 2011?
A) $49,638
B) $52,250
C) $55,000
D) $57,750
E) $60,638

Accepted Answer

The dividends paid can be calculated by taking the difference in retained earnings from 2010 to 2011 and subtracting the net income for 2011: $525,000 - $445,000 = $80,000 increase in retained earnings. Then, $135,000 (net income) - $80,000 (increase in retained earnings) = $55,000 in dividends paid.

Question 18

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

Step 1: Calculate the after-tax yield on the preferred stock before considering the dividend exclusion.
After-tax yield = Before-tax yield x (1 - Marginal tax rate)
= 12% x (1 - 35%)
= 7.80%
Step 2: Apply the dividend exclusion of 70% to the after-tax yield calculated in step 1.
After-tax return = After-tax yield x (1 - Dividend exclusion)
= 7.80% x (1 - 70%)
= 2.34%
Step 3: Add the dividend exclusion to the after-tax return calculated in step 2.
After-tax return = After-tax return + Dividend exclusion
= 2.34% + 70%
= 10.74%

Question 19

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 20

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

The answer of Vasudevan Inc. recently reported operating income of...

Quiz 3: Financial Statements

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 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?

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

During 2011, 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?

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?

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?

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?

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

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?

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?

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?

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?