Fin 221 Fall 2006 Exam 2
Identify the choice that best completes the statement or answers the question.
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?
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?
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
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?