Chapters: 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, and 13
1) A C corporation earns $4.50 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $2.00 dividend?
2) Why in general do financial managers make financial decisions in a corporation, rather than the owners making these decisions themselves?
A) The interests of the various owners may conflict with each other. B) It is best for the control of the finances of a corporation to be in the hands of a disinterested third party. C) The owners may not be U.S. citizens or residents.
D) There are often many owners, and they can often change as they buy and sell stock. 3) Which of the following is NOT a function of the board of directors? A) answering to shareholders of the company
B) monitoring the performance of the company
C) determining how top executives should be compensated
D) day-to-day running of the company
4) Which of the following is a measure of the aggregate price level of collections of pre-selected stocks? A) Euronext
C) S&P 500
5) Which of the following is not a role of financial institutions? A) Printing money for borrowers.
B) Moving funds from savers to borrowers.
C) Spreading out risk-bearing.
D) Moving funds though time.
6) In the United States, publicly traded companies can choose whether or not they wish to release periodic financial statements.
7) A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?
A) a patent for a drug held by the company
B) the cash reserves of the company
C) commercial paper held by the company
D) the inventory of chemicals used to produce the drugs made by the company
Use the table for the question(s) below.
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Notes payable /
Current maturities of
Other current assets
Other current liabilities
Total current assets 171.0 144.0
Total current liabilities
Net property, plant, and
Other long-term assets
Total long-term assets
Capital lease obligations
Other long-term liabilities
Total long-term liabilities
--- --262.5 191.1
Total liabilities and
--- --239.7 168.9
8) Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Luther's market-to-book ratio would be closest to: A) 0.39
9) Which of the following statements regarding the income statement is INCORRECT? A) The first line of an income statement lists the revenues from the sales of products or services. B) The income statement shows the earnings and expenses at a given point in time. C) The income statement shows the flow of earnings and expenses generated by the firm between two dates. D) The last or "bottom" line of the income statement shows the firm's net income.
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