MAN303-B

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MAN303-B QUİZ 1

2005-10-18

Name:

Student No:

Honor Pledge: I have neither given nor received an unauthorized aid on this assignment.

Signature:...............................

PART 1: Multiple Choice. (9 pts each)

1.

The primary goal of a publicly-owned firm interested in serving its stockholders should be to a) b) c) d) e)

Maximize expected total corporate profit.

Maximize expected EPS.

Minimize the chances of losses.

Maximize the stock price per share.

Maximize expected net income.

2.

Which of the following items is included as part of a company’s current liabilities? a) b) c) d) e)

Accounts payable.

Inventory.

Accounts receivable.

Statements b and c are correct.

All of the statements above are correct.

3.

Hayes Corporation has $600 million of common equity on its balance sheet and 12 million shares of common stock outstanding. The company’s Market Value Added

(MVA) is $162 million. What is the company’s stock price? a) b) c) d) e)

$ 23,5

$ 32,5

$ 50,2

$ 63,5

$138,3

4.

Whitehall Clothiers had $5,000,000 of retained earnings on its balance sheet at the end of 2000. One year later, Whitehall had $6,000,000 of retained earnings on its balance sheet. Whitehall has one million shares of common stock outstanding, and it did not paid any dividends in 2001. What was Whitehall’s earnings per share in 2001? a) b) c) d) e)

$0.80

$1.00

$1.80

$5.00

$6.00

5.

Which of the following actions are likely to reduce agency conflicts between stockholders and managers? a) b) c) d) e)

Paying managers a large fixed salary.

Increasing the threat of corporate takeover.

Placing restrictive covenants in debt agreements.

All of the statements above are correct.

Statements b and c are correct.

6.

On its 2000 balance sheet, Sherman Books had retained earnings equal to $510 million. On its 2001 balance sheet, retained earnings were also equal to $510 million. Which of the following statements is most correct?

a) b) c) d) e)

The company must have had net income equal to zero in 2001.

The company did not pay dividends in 2001.

If the company’s net income in 2001 was $200 million, dividends paid must have also equaled $200 million.

If the company lost money in 2001, they must have paid dividends.

None of the statements above is correct.

7.

All else equal, which of the following actions will increase the amount of cash on a company’s balance sheet? a) b) c) d) e)

The company issues new common stock.

The company repurchases common stock.

The company pays a dividend.

The company purchases a new piece of equipment.

All of the statements above are correct.

8.

Scranton Shipyards has $20 million in total investor-supplied operating capital.

The company’s WACC is 10 percent. The company has the following income statement:

Sales $10.0 million

Operating costs 6.0 million

Operating income (EBIT) $ 4.0 million

Interest expense 2.0 million

Earnings before taxes (EBT) $ 2.0 million

Taxes (40%) 0.8 million

Net income $ 1.2 million

What is Scranton’s EVA? a) b) c) d) e)

$ 400,000

-$ 800,000

$1,200,000

$2,000,000

$4,000,000

9.

Byrd Lumber has 2 million shares of common stock outstanding and its stock price is $15 a share. On the balance sheet, the company has $40 million of common equity. What is the company’s Market Value Added (MVA)? a) b) c) d)

-$80,000,000

-$20,000,000

-$10,000,000

$20,000,000 e) $80,000,000

10.

Casey Motors recently reported the following information:

Net income = $600,000.

Tax rate = 40%.

Interest expense = $200,000.

Total investor-supplied operating capital employed = $9 million.

After-tax cost of capital = 10%.

What is the company’s EVA? a) b) c) d) e)

-$300,000

-$180,000

$ 0

$200,000

$400,000

PART 2: Short Answer Question. (10 pts)

11.

You have just obtained financial information for the past 2 years for Sebring

Corporation.

SEBRING CORPORATION: INCOME STATEMENTS FOR YEAR ENDING DECEMBER 31

(MILLIONS OF DOLLARS)

Sales

Operating costs excluding depreciation

EBITDA

Depreciation

Earnings before interest and taxes

Less interest

Earnings before taxes

2001

$3,600.0

3,060.0

$ 540.0

90.0

$ 450.0

65.0

$ 385.0

2000

$3,000.0

2,550.0

$ 450.0

75.0

$ 375.0

60.0

$ 315.0

What is Sebring’s net operating profit after taxes (NOPAT) for 2001?

Given that Sebring has 50 million shares outstanding, what is EPS (earnings per share)?

Taxes (40%)

Net income available to common stockholders

Common dividends

154.0

$ 231.0

$ 181.5

126.0

$ 189.0

$ 13.2

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