Question Details

Which of the following are likely to occur if this proposal is adopted



1. 	Stennett Corp.- CFO has proposed that the company issue new debt and use the proceeds to buy back common stock.  Which of the following are likely to occur if this proposal is adopted?  (Assume that the proposal would have no effect on the company- operating income.)

a.	Return on assets (ROA) will decline.
b.	The Depreciation will increase.
c.	Taxes paid will decline.
d.	Statements a and c are correct.  


2.	Company J and Company K each recently reported the same earnings per share (EPS).  Company J- stock, however, trades at a higher price. Which of the following statements is most correct?

	a.	Company J must have a higher P/E ratio.  
	b.	Company J must have a higher market to book ratio.
	c.	Company J must be riskier.
	d.	Company J must have fewer growth opportunities.

3.   As a short-term creditor concerned with a company- ability to meet its financial obligation to you, which one of the following combinations of ratios would you most likely prefer?

  Current        		Debt
	ratio	TIEratio

a.	0.8	   1.3      0.3
b.	1.2	   1.2      0.8
c.	1.7	   1.2      0.8   
d.	2.0      1.3      0.55  

4. Russell Securities has $100 million in total assets and its corporate tax rate is 40 percent.  The company recently reported that its basic earning power (BEP) ratio was 15 percent and its return on assets (ROA) was 9 percent.  What was the company- interest expense?

	a.	$         0  
	b.	$ 2,000,000
	c.	$ 6,000,000
	d.	$15,000,000
	
5.  You are given the following information:  Stockholders’ equity = $1,250; price/earnings ratio = 5; shares outstanding = 25; and market/book ratio = 1.5.  Calculate the market price of a share of the company- stock.

a.	$ 33.33
b.	$ 75.00  
c.	$ 10.00
d.	$166.67



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