Question Details

What profit margin would Burger need 



1)	Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
A.	The company issues new common stock.
B.	The company repurchases common stock.
C.	The company pays a dividend.
D.	The company purchases a new piece of equipment.
E.	The company gives customers more time to pay their bills.


	2)	Which of the following statements is CORRECT?
A.	In the statement of cash flows, depreciation charges are reported as a use of cash.
B.	In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
C.	In the statement of cash flows, a decrease in inventories is reported as a use of cash.
D.	In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
E.	Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.


	3)	Which of the following statements is CORRECT?
A.	The maximum federal tax rate on corporate income in 2005 was 50%.
B.	The maximum federal tax rate on personal income in 2005 was 50%.
C.	Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes.
D.	Interest earned by an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2005 could go up to 35%, but dividends received are taxed at a maximum rate of 15%.
E.	Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible.


	4)	Kirby Industries has sales of $110,000 and accounts receivable of $12,500, and it gives its customers 30 days to pay. The industry average DSO is 25.5 days, based on a 365 day year. If the company changes its credit and collection policy sufficient to cause its DSO to fall to the industry average, and if it earns 9.5% on any cash freed-up by this change, how would that affect the firm's net income, assuming other things are held constant?
A.	$422.12
B.	$435.43
C.	$447.86
D.	$457.43
E.	$469.93


	5)	Burger Corp has $500,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $600,000, and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would Burger need in order to achieve the 15% ROE, holding everything else constant?
A.	  8.00%
B.	  9.50%
C.	11.00%
D.	12.50%
E.	14.00%



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