Question Details

A company with a 15% tax rate buys preferred stock 



1.	During 2008, Bascom Bakery paid out $33,525 of common dividends.  It ended the year with $197,500 of retained earnings versus the prior year- retained earnings of $159,600.  How much net income did the firm earn during the year?

a.	$71,425
b.	$74,996
c.	$78,746
d.	$82,683
e.	$86,818
	
2.	A company with a 15% tax rate buys preferred stock in another company.  The preferred stock has a before-tax yield of 8%.  What is the preferred stock- after-tax return?

a.	6.90%
b.	7.26%
c.	7.64%
d.	8.02%
e.	8.42%
	
3.	Wu Systems has the following balance sheet.  How much net working capital does the firm have?

Cash	$  100	Accounts payable	$  200
Accounts receivable	 650	Accruals	350
Inventory	   550	Notes payable	   350
  Current assets	$1,300	  Current liabilities	$  900
Net fixed assets	1,000	Long-term debt	600
		Common equity	300
			Retained earnings	   500
Total assets	$2,300	Total liab. & equity	$2,300

a.	$675
b.	$750
c.	$825
d.	$908
e.	$998
	
4.	Last year Almazan Software reported $10.50 million of sales, $6.25 million of operating costs other than depreciation, and $1.30 million of depreciation.  The company had $5.00 million of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%.  This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $0.70 million.  By how much will net income change as a result of the change in depreciation?  The company uses the same depreciation calculations for tax and stockholder reporting purposes.

a.	-$0.432
b.	-$0.455
c.	-$0.478
d.	-$0.502
e.	-$0.527
	
5.	C. F. Lee Inc. has the following income statement.  How much after-tax operating income does the firm have?

	Sales	$2,850.00
	Costs	1,850.00
	Depreciation	   192.00
	EBIT	$  808.00
	Interest expense	   285.00
	EBT	$  523.00
	Taxes (35%)	   183.05
	Net income	$  339.95

a.	$427.78
b.	$450.29
c.	$473.99
d.	$498.94
e.	$525.20




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