fa06ex2 (1) - Fin 221 Fall 2006 Exam 2 Multiple Choice...

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Fin 221 Fall 2006 Exam 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1) Marcus Nurseries Inc.'s 2005 balance sheet showed total common equity of $2,050,000, which included $1,750,000 of retained earnings. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. If the firm had net income of $250,000 in 2006 and paid out $100,000 as dividends, what would its book value per share be at the end of 2006, assuming that it neither issued nor retired any common stock? A. $19.00 B. $20.00 C. $21.00 D. $22.00 E. $23.00 2) Lennox Furniture Company's 2005 balance sheet showed total current assets of $1,500,000. All of the current assets were required in operations, and its current liabilities consisted of $300,000 of accounts payable, $200,000 of 6% short-term notes payable to the bank, and $100,000 of accrued wages and taxes. What was the net operating working capital that was financed by investors at the end of 2005? 3) Johnson Battery Systems Metals recently reported $9,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. The company had no amortization charges, it had $4,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate was 40%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $800 of capital expenditures on new fixed assets and to invest $500 in net operating working capital. What was its free cash flow ? 4) For 2005, Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including depreciation). The company has $20,500 of investor-supplied operating assets (or capital), the weighted average cost of that capital (the WACC) was 10%, and the federal-plus-state income tax rate was 40%. What was the firm's Economic Value Added (EVA), i.e., how much value did management add to stockholders' wealth during 2005?
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5) Which of the following statements is CORRECT? A. The balance sheet for a given year, say 2005, is designed to give us an idea of what happened to the firm during that year. B. The balance sheet for a given year, say 2005, tells us how much money the company earned during that year. C. The difference between the total assets reported on the balance sheet and the debts reported on the statement tells us the current market value of the stockholders equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP). D. For most companies, the market value of the stock differs from the book value of the stock as reported on the balance sheet. E. A typical industrial company's balance sheet lists the firm's longest lived assets first, then goes on down to the assets that will be converted to cash listed last.
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