What is the firm’s equity multiplier?

Which of the following is not an advantage of the corporate form of business organization?
a. Sell debt or equity in public capital markets
b. Owners have limited liability
c. Owners are subject to double taxation
d. May continue in business in perpetuity

Ques. 2) Working capital management involves decisions related to the following:
a. Purchase of production machines
b. Extending credit to customers
c. Signing a 3 year lease for an office building
d. Negotiating with city officials a 2-year tax abatement plan for a new factory

Ques. 3) Which of the following statements is correct:
a. Market forces provide sufficient incentives for ethical behavior
b. It would be easier to do business if there were no ethical norms
c. Government regulations are necessary to ensure ethical behavior
d. An ethical culture with good internal controls promotes ethical behavior

Ques. 4) In 2010, Jack’s Art Gallery sold 200 original works of art for $1,240,520. The gallery acquired the works sold for $530,000. Each painting was framed using predesigned framing kits in the gallery’s own workshop. The firm bought 100 kits in January for $50,000, 100 kits in March for $60,000.,100 kits in May for $40,000 and 100 kits in August for $30,000. Other costs of operation, including salaries, supplies, rent, etc., totaled $200,000. The company depreciated its assets by $120,000 and paid interest on loans totaling $55,000. Assuming no other costs and that Jack’s Art Gallery used FIFO in its inventory management, the firm’s EBITDA for 2010 was:
a. $280,520
b. $230,520
c. $400,520
d. $440,520

Ques. 5) Jake Smith opened his Balinese coffee shop business in downtown Boise on January 1st 2010. On December 31st, 2010, he sat down with his accountant to figure out how his business had done in its first year and heaved a sigh of relief when his accountant reported that his EBT came to $20,000. Revenues, at $1,050,000 looked good. His expenses were as follows:

Salaries and benefits paid to employees $210,000
Jake’s own salary $100,000
Supplies (coffee, tea, milk, pastries, etc.) $620,000
Cost of Restaurant grade coffee machine $30,000
Miscellaneous operating costs $44,000
Interest on loan $12,000
How much did Jake’s accountant allocate for depreciation and amortization?
a. $44,000
b. $14,000
c. $4,000
d. $0.00

Ques. 6) Timber firewood company reported the following numbers in its 2010 income statement:
EBIT $520,000
Depreciation $35,000
Interest expenses $24,000
General expenses $110,000

If it’s marginal tax rate was 30%, what were Timber’s cash flows from operating activities for 2010?
a. $347,200
b. $382,200
c. $496,000
d. $520,000

Ques. 7) For the year ending June 30, 2008, the Austin Corporation has current assets of $ 275,000 and total assets of $ 900,000. It also has current liabilities of $ 150,000, equity of $ 200,000, and retained earnings of $ 100,000. The marginal tax rate for the firm is 30%. How much long-term debt does the firm have?
a) $ 250,000
b) $ 350,000
c) $ 315,000
d) $ 450,000

Ques. 8) The Johnson and Baker Company increased investments in foreign securities by $ 120,000, funded fixed asset acquisitions by $ 1,500,000, and sold $ 90,000 of long-term debt. Also, the firm had a net inflow of $ 300,000 from the sale of assets. What is the net cash used in investing activities?
a) $ 1,320,000
b) $ 1,230,000
c) $ 1,410,000
d) $ 1,800,000

Ques. 9) Net working capital is:
a) equal to the expenses on the income statement
b) a traditional measure of a firm’s liquidity
c) reduced by the firm’s outstanding treasury stock to determine profits
d) equal to total assets plus total liabilities

Ques. 10) Intangible Assets include all the following except:
a. Trademarks
b. Goodwill
c. Patents
d. Capital leases
e. All of the above

Ques. 11) Owners Equity consists of all the following except:
a. Additional paid in capital.
b. Par value stock
c. Debentures outstanding
d. Retained earnings

Ques. 12) On the statement of cash flows an increase in accounts receivables is considered:
a. A cash inflow
b. A use of cash
c. A source of cash
d. None of the above

Ques. 13) Which of the following best describes how corporations are taxed on dividend income?
a. Like individuals, corporations are taxed on all dividends received.
b. Seventy percent of dividend income received by corporations is tax exempt.
c. Varying amounts of dividend income received by corporations are tax-exempt, depending on the percent of the paying corporation that the receiving corporation owns.
d. In order to avoid triple taxation of earnings, dividend income received by one corporation from another in which it owns stock is 100% tax-exempt.

Ques. 14) Kleaner Kars has a return on assets of 6.75 percent, a total asset turnover rate of 1.3, and an equity multiplier of 1.6. Using the Dupont Identity, what is the return on equity?
a. 8.30 percent
b. 8.78 percent
c. 10.80 percent
d. 14.04 percent
e. 14.33 percent

Ques. 15) Jefferson and Sons has total assets of $807,200, total equity of $509,500, total sales of $945,300, and net income of $25,600. What is the profit margin?
a. 1.17 percent
b. 1.86 percent
c. 2.71 percent
d. 3.17 percent
e. 5.02 percent

Ques. 16) A firm has a debt-to-equity ratio of 0.5. What is the firm’s equity multiplier?
a. 0.33
b. 1.50
c. 0.50
d. 2.00
e. 5.00

Ques. 17) Knox Corp. plans to sell 1,000 units in 2011 at an average sale price of $40 each. Cost of goods sold will be 40% of the sale price. Depreciation expense will be $2,500, interest expense $1,500, and other expenses will be $3,000. Wessel’s tax rate is 35%. What will Knox Corp.’s net income be for 2011?
a. $ 9,500
b. $ 6,875
c. $14,200
d. $11,050
e. $28,430

Ques. 18) What is the return on stockholders’ equity for a firm with a net profit margin of 4.9 percent, sales of $350,000, an equity multiplier of 1.6, and total assets of $215,000?
a. 12.76%
b. 15.24%
c. 12.57%
d. 8.88%

Ques. 19) Assume a firm has an average inventory of $50,000, sales of $250,000, gross profit of $100,000, and net income of $25,000. The preferred formulation for an inventory turnover results in an inventory turnover of:
a. 1 time
b. 3 times
c. 4 times
d. 5.5 times

Ques. 20) The higher the rate of interest:
a. the smaller the future value of an amount invested to-day
b. the smaller the present value of a future sum of money
c. the larger the present value of a future sum of money
d. all of the above

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