Finance 550

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Practice Exam Questions and Answers 

1. The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.  A. $4,600,000; $3,900,000

B. $4,600,000; $3,125,000
C. $5,000,000; $3,125,000
D. $5,000,000; $3,900,000
E. $6,500,000; $3,900,000

Book value = ($725,000 + $1,375,000) + $2,500,000 = $4,600,000 Market value = $1,900,000 + $2,000,000 = $3,900,000

 

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 1-4
Ross - Chapter 01
Section: 1.4
Topic: Proxy
 

2. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?  [pic]  
A. 28.25 percent
B. 31.09 percent
C. 33.62 percent
D. 35.48 percent
E. 39.00 percent

Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($211,360) = $104,680.40 Average tax rate = $104,680.40/$311,360 = 33.62 percent

 

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 1-3
Ross - Chapter 01
Section: 1.5
Topic: NASDAQ
 

3. The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000?  [pic]  
A. $8,080
B. $8,130
C. $8,155
D. $8,170
E. $8,190

Additional tax = .34($100,000 - $97,800) + .39($97,800 + $21,000 - $100,000) = $8,080

 

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 2-1
Ross - Chapter 02 #57
Section: 2.1
Topic: GAAP
 

4. Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000 of which 60 percent is payable within the next year. The firm net fixed assets of $161,900. What is the amount of the net working capital?  A. $25,300

B. $30,300
C. $75,600
D. $86,300
E. $111,500

Current liabilities = .60 ( $126,000 = $75,600
Total assets = $141,800 + $126,000 = $267,800
Current assets = $267,800 - $161,900 = $105,900
Net working capital = $105,900 - $75,600 = $30,300

 

AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 2-3
Ross - Chapter 02 #50
Section: 2.3
Topic: Marginal tax rate
 

5. Which one of the following grants an individual the right to vote on behalf of a shareholder?  A. proxy
B. by-laws
C. indenture agreement
D. stock option
E. stock audit

Refer to section 1.4

 

AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 2-1
Ross - Chapter 02
Section: 2.1
Topic: Market value
 

6. Which one of the following statements concerning NASDAQ is FALSE?  A. It is easier to be listed on NASDAQ than on the NYSE.
B. NASDAQ is an electronic market.
C. NASDAQ is a dealer market.
D. NASDAQ is an OTC market.
E. NASDAQ is an auction market.

Refer to section 1.5

 

AACSB: N/A
Bloom's: Comprehension
Difficulty: Intermediate
Learning Objective: 2-1
Ross - Chapter 02
Section: 2.1
Topic: Net working capital
 

7. The common set of standards and procedures by which audited financial statements are prepared is known as the:  A. matching principle.
B. cash flow identity.
C. Generally Accepted Accounting Principles.
D. Financial Accounting Reporting Principles.
E. Standard Accounting Value Guidelines.

Refer to section 2.1

 

AACSB: N/A
Bloom's: Comprehension
Difficulty: Intermediate
Learning Objective: 2-1
Ross - Chapter 02 #3
Section: 2.1
Topic: Financial leverage
 

8. The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.  A. mean
B. residual
C. total
D. average
E. marginal

Refer to section 2.3

 

AACSB:...
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