Fi 515 Essay

3145 words - 13 pages

1 | On its 1999 balance sheet, Sherman Books showed a balance of retained earnings equal to $510 million.  On its 2000 balance sheet, the balance of retained earnings was also equal to $510 million.  Which of the following statements is most correct?  Show your calculations. | | | | | | | | | | | | |
| a. The company must have had net income equal to zero in 2000. | | | | | | | | | | | | |
| b. The company had a profit in 2000 but did not pay a dividend in 2000. | | | | | | | | | | | | |
| c. the company’s net income in 2000 was $200 million. | | | | | | | | | | | | |
| d. If the company lost money in 2000, they must have paid a ...view middle of the document...

was organized as a partnership. This year, the partners have decided to organize the business as a corporation. As a result of this change in organizational form, choose the statement that is most correct and explain why? | | | | | | | | | | | | |
| a. Cheers’ shareholders (the ex-partners) will now have limited liability. | | | | | | | | | | | | |
| b. Cheers will now be subject to fewer regulations. | | | | | | | | | | | | |
| c. Cheers will now pay less in taxes. | | | | | | | | | | | | |
| d. Cheers’ investors will now find it more difficult to transfer ownership. | | | | | | | | | | | | |
| e. Cheers will now find it more difficult to raise additional capital. | | | | | | | | | | | | |
| | | | | | | | | | | | | |
4 | | | | | | | | | | | | | |
| ABC Corporation has $50,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Spartan County tax-free municipal bonds yielding 8 percent; Ford bonds yielding 11.5 percent; GE preferred stock with a dividend yield of 12 percent. ABC's corporate tax rate is 35 percent. What is the after-tax return on the best investment alternative? (Assume the company chooses on the basis of after-tax returns.) | | | | | | | | | | | | |
| Given: Spartan County Tax: 8% | | | | | | | | | | | | |
| Ford Bond Yeilding = 11.5% | | | | | | | | | | | | |
| GE Pref Stock = 12% | | | | | | | | | | | | |
| ABC Tax Rate = 35% | | | | | | | | | | | | |
| 0.115 | | | | | | | | | | | | |
| 11.5(1-.35)% | | | | | | | | | | | | |
| 0.07475 | | | | | | | | | | | | |
| 7.475 | | | | | | | | | | | | |
| GE  Pref Stock = 12% | | | | | | | | | | | | |
| 12(1-.35) | | | | | | | | | | | | |
| 0.078 | | | | | | | | | | | | |
| 7.8 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
5 | (TCO D) After-tax returns | | | | | | | | | | | | |
| West Corporation has $50,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 6 percent; Exxon bonds yielding 9.5 percent; GM preferred stock with a dividend yield of 9 percent. West's corporate tax rate is 35 percent. What is the after-tax return on the best investment alternative? (Assume the company chooses on the basis of after-tax returns.) | | | | | | | | | | | | |
| Given: Alchua County Bonds 6% | | | | | | | | | | | | |
| Exxon Bonds - 9.5(1-.35%) = 6.175% | | | | | | | | | | | | |
| 0.06175 | | | | | | | | | | | | |
| 6.175 | | | | | | | | | | | | |
| GM Pref = 9(1.-.35)%...

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