02 Jan equity, assets, and

Question 1. Question :

You own 100 shares of a Sub Chapter “S” corporation. The corporation earns $5.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40% and your personal tax rate on (both dividend and non-dividend) income is 30%, then how much money is left for you after all taxes have been paid?

$210

$300

$350

$500

EPS × number of shares × (1 – Individual Tax Rate) = $5.00 per share × 100 shares × (1 – .30) = $350

Question 2. Question :

A sole proprietorship is owned by:

one person.

two or more persons.

shareholders.

bankers.

Question 3. Question :

The most senior financial manager in a corporation is usually called the:

chief executive officer.

chief financial officer.

chief operating officer.

chairman of the board

Question 4. Question :

If you buy shares of Coca-Cola on the secondary market:

Coca-Cola receives the money because the company has issued new shares.

you buy the shares from another investor who decided to sell the shares.

you buy the shares from the New York Stock Exchange.

you buy the shares from the Federal Reserve.

Question 5. Question :

Which of the following is not a financial statement that every public company is required to produce?

Income Statement

Statement of Sources and Uses of Cash

Balance Sheet

Statement of Stockholders’ Equity

Question 6. Question :

Cash is a:

long-term asset.

current asset.

current liability.

long-term liability.

Question 7. Question :

If ECE’s stock is currently trading at $24.00 and ECE has 25 million shares outstanding and $100 million in shareholder equity, then ECE’s market-to-book ratio is closest to __________.

24

4

6

30

Market to Book = (MV Equity)/(BV Equity) = ($24 x 25 million)/$100 million = 6.0

Question 8. Question :

Which of the following statements regarding the income statement is incorrect?

The income statement shows the earnings and expenses at a given point in time.

The income statement shows the flow of earnings and expenses generated by the firm between two dates.

The last or “bottom” line of the income statement shows the firm’s net income.

The first line of an income statement lists the revenues from the sales of products or services.

Question 9. Question :

The DuPont Identity expresses the firm’s ROE in terms of:

profitability, asset efficiency, and leverage.

valuation, leverage, and interest coverage.

profitability, margins, and valuation.

equity, assets, and liabilities.

Question 10. Question :

Wyatt Oil has a net profit margin of 4.0%, a total asset turnover of 2.2, total assets of $525 million, and a book value of equity of $220 million. Wyatt Oil’s current return-on-assets (ROA. is closest to __________.

8.8%

9.5%

21.0%

22.8%