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2013-2014 Sem 1 Questions - N X,$,$10/3&$t(03...

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2013/2014 Semester 1 Midterm Questions 1.The corporate form of organization is characterized by all of the following EXCEPT: A.Its owners enjoy limited liability. B.In theory it has an unlimited life. C.In all of the following jurisdictions U.S., UK and Singapore its benefits include that it makes it easier to raise funds and facilitates the transfer of ownership over and above the partnership form of organization. D.In all of the following jurisdictions U.S., UK and Singapore its drawbacks include its agency costs and double taxation. E.All of the above choices are correct. 2.Prabhala’s Products Inc. has the following data:Net income: $240 Sales: $10,000 Total assets: $6,000 Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2 If Prabala could streamline operations, cut operating costs, and raise net income to $300, without affecting sales or the balance sheet (the additional profits will be paid out as dividends), by how much would its ROE increase? 3.Ramy Inc. and Sami Corp. each have assets of $10,000 and a return on common equity equal to 15%. Ramy has twice as much debt and twice as many sales relative to Sami Corp. Ramy’s net income equals $750, and its total asset turnover is equal to 3. What isSami Corp.’s profit margin?
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4.Other things held constant, which of the following will cause an increase in current assets? Use the following financial statements to answer questions 5-9 below. Meijun Metals Inc. 2012 and 2013 Balance Sheets 2012 2013 2012 2013 Cash $600 $300 Accounts payable $2,000 $1,800 Accounts receivable 2,000 2,500 Notes payable 2,000 1,000 Inventory 4,000 3,700 Total $4,000 $2,800 Total $6,600 $6,500 Long-term debt 14,000 16,000 Net fixed assets 25,000 27,000 Common stock 7,500 7,000 Retained earnings 6,100 7,700 Total assets $31,600 $33,500 Total liab. & equity $31,600 $33,500 Meijun Metals Inc. 2013 Income Statement Net Sales $30,000 Cost of goods sold 20,000 Depreciation 2,000 Earnings before interest and taxes 8,000 Interest paid 2,000 Taxable income $6,000 Less: Taxes (40%) 2,400 Net income $3,600
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