Multiple Choice Answers

Which of the following would not normally be considered a “flotation cost?” (Points : 1)
underwriter’s spread
dividends
legal fees
printing and engraving expenses

2. PDQ Corp. has sales of $4,000,000; the firm’s cost of goods sold is $2,500,000; and its total operating expenses are $600,000. The firm’s interest expense is $250,000, and the corporate tax rate is 40%. What is PDQ’s tax liability? (Points : 1)
$258,000
$260,000
$360,000
$600,000

3. SRC has a debt ratio of .4, current liabilities of $18,000, and total assets of $100,000. What is the level of SRC’s total liabilities? (Points : 1)
$22,000
$40,000
$58,000
$63,934

4. Li Retailing reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000; Li’s operating profit margin is equal to (Points : 1)
25.67%
35.67%
36.67%
50.00%

5. What was the average annual rate of return on 3-month U.S. Treasury bills during the period 1984 to 2008? (Points : 1)
3.84%
4.23%
4.76%
5.68%

6. Net working capital is equal to (Points : 1)
total assets minus total liabilities.
current assets minus total liabilities.
total operating capital minus net income.
current assets minus current liabilities.

7. Which of the following statements is most correct concerning flotation costs? (Points : 1)
flotation costs are the same for common stock, preferred stock and bonds because they reflect mainly printing costs and legal fees.
flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher, allowing for economies of scale
flotation costs as a percentage of gross proceeds increase as the size of the security issue increases
flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock

8. A financial manager is considering two projects, A and B. A is expected to add $2 million to profits this year while B is expected to add $2 million to profits this year while B is expected to add $1 million to profits this year. Which of the following statements is most correct? (Points : 1)
The manager should select project A because it maximizes profits.
The manager should select the project that maximizes long-term profits, not just one year of profits.
The manager should select project A or he is irrational.
The manager should select the project that causes the stock price to increase the most, which could be A or B.

9. Li Retailing reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000. Li’s net profit margin is equal to (Points : 1)
25.67%.
35.67%.
36.67%.
50.00%.

10. PDQ Corp. has sales of $4,000,000; the firm’s cost of goods sold is $2,500,000; and its total operating expenses are $600,000. What is PDQ’s EBIT? (Points : 1)
$850,000
$875,000
$900,000
$1,300,000