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?
A.
$1,100,000
B.
$1,200,000
C.
$1,300,000
D.
$1,400,000
E.
$1,500,000
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
?
A.
$1,000
B.
$1,100
C.
$1,200
D.
$1,300
E.
$1,400
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?
A.
$1,700
B.
$1,775
C.
$1,850
D.
$1,925