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# Quiz_2_Version_A_Answers[1] - Fall 2010 FIN 351 Quiz 2...

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Fall 2010 FIN 351 Quiz 2 Version A Student: ___________________________________________________________________________ Use the following information for questions 1-4. Suppose number of units sold (Q) = 500,000 Price per unit (P) = \$10 Variable cost (V) = \$3 Fixed operating costs =590,000 Fixed financing cost = 270,000 1. What is the degree of operating leverage? A. 1.10 B. 1.20 C. 1.32 D. 1.41 2. What is the degree of financial leverage? 3. If operating income decreases by 5% what will happen to net income? 4. If the number of units sold increase by 4% what will happen to net income? 5. BofE Inc. has a return on assets of 15%, the return on debt of 10%. The capital structure is 34% debt and 66% equity. What is the return on equity? Ignore taxes. A. 15.0% B. 24.7% C. 10.0% D. 17.6%

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6. Global Auto has sells cars at the price of \$20,000 per car. The variable cost is \$15,000 per car. The interest expense is \$10,000 and fixed costs are \$25,000. The tax rate is 30%. What is the breakeven amount? 7. Which of the following newspaper headlines would have the greatest positive impact on stock price? Credit Sales 50,000 Cost of goods sold 40,000 Accounts Receivable 3,500 Inventory Ending Balance 2,500 Accounts Payable 5,000 8. Use Table 1. What is the number of days of accounts receivable? 9. Use Table 1. What is the operating cycle? A. 22.8 days B. 25.5 days C. 31.9 days D. 48.3 days 10. Use Table 1. Inventory turnover last year for Company X was 20. Has inventory turnover improved or worsened? 11. Your company wants to borrow 1 million dollars for one month. You are head of the short-term investments of your company and must make a decision which is the best offer. a. Line of credit at 6.5% with a ½% commitment fee. b. A banker’s acceptance at 6.75%, all inclusive rate. c. Commercial paper at 6.2 5% with a dealer’s commission of 1/8% and a backup line cost of ¼%. Which offers the best yield? A. Line of Credit B. Banker’s Acceptance C. Commercial Paper
12. Charles Co. has announced an acquisition of a small company, Premier. Premier shareholders will each receive 0.70 shares of Charles Co. for every share they own. Premier has 1 million shares outstanding. The stock price of Charles Co. is \$37 and Premier is \$20. What is the control premium?

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Quiz_2_Version_A_Answers[1] - Fall 2010 FIN 351 Quiz 2...

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