Chapter 3 - (Difficulty Levels Easy Easy/Medium Medium...

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Unformatted text preview: (Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) PART I New and Revised Carryover Problems and Questions Multiple Choice: Problems Notes to Professors: A good bit of relatively simple arithmetic is involved in these problems, and although the calculations are simple, it will take students some time to set up the problem and do the arithmetic. Please allow for this when assigning problems for a timed test. Also, note that students must have memorized a number of definitions to answer some of the questions. You might want to provide students with a list of formulas and definitions for use on the exam. Many of the problems involve situations where a number of steps are required to reach a final solution. We developed some of these problems so that the first problem takes us through the first step, the second one through the second step, and so on until the last of the problems requires students to do all the steps to get to the final point in the process. Obviously, the first of these questions is easiest, and the last one is most difficult. Instructors can decide to use easier or harder ones of these problems. Also, to avoid confusion when the algorithmic process is used to create new versions of the problems, we treat each of these problems completely separately. Finally, note that a number of the problems go into more depth in accounting, and especially managerial accounting, than some professors want to require of students in the introductory finance course. We recommend that you select problems with care, depending on what you emphasize in class. Also, to help students focus on important issues as opposed to memorizing definitions, we recommend that you consider providing students with a list of formulas and definitions for use on the exam. Balance sheet: market value vs. book value Answer: a EASY 1 . Superior Medical System's 2005 balance sheet showed total common equity of $2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. By how much did the firm's market value and book value per share differ? a. $36.75 b. $38.25 c. $39.50 d. $40.25 e. $51.00 Chapter 3: Financial Statements, Cash Flows and Taxes Page 129 CHAPTER 3 FINANCIAL STATEMENTS, CASH FLOW, AND TAXES Net cash flow Answer: c EASY 2 . Shop-Til-You-Drop Inc. recently reported net income of $5.2 million and depreciation of $600,000. What is its net cash flow? Assume it has no amortization expense. a. $5,400,000 b. $5,600,000 c. $5,800,000 d. $6,000,000 e. $6,200,000 MVA Answer: a EASY 3 . 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?...
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Chapter 3 - (Difficulty Levels Easy Easy/Medium Medium...

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