Question 1. (TCO A) Which of the following statements is CORRECT?

a.      One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.    

b.      It is generally easier to transfer one’s ownership interest in a partnership than in a corporation.

c.       One of the advantages of the corporate form of organization is that it avoids double taxation.

d.      One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.”

e.       Corporations of all types are subject to the corporate income tax.

Question 2. (TCO G) Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance?

a.       The company’s operating income declined.

b.      The company’s expenditures on fixed assets declined.

c.       The company’s cost of goods sold increased.

d.      The company’s depreciation and amortization expenses declined.

e.       The company’s interest expense increased.

Question 3.3. (TCO G) Beranek Corp. has $410,000 of assets, and it uses no debt—it is financed only with common equity. The new CFO wants to employ enough debt to bring the debt to assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio?

a.       $155,800

b.      $164,000

c.       $172,200

d.      $180,810

e.       $189,851

Calculation:

See in attachment

Question 4.4. (TCO B) Suppose a State of New York bond will pay $1,000 10 years from now. If the going interest rate on these 10-year bonds is 5.5%, how much is the bond worth today?

a.      $585.43

b.      $614.70

c.       $645.44

d.      $677.71

e.       $711.59

Calculation:

See in attachment

Question 5.5. (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. Which was the effective price you received for the car, assuming an interest rate of 6.0%?

Years: 0 1 2 3 4

|———–|————–|————–|————–|

CFs: $0 $1,000 $2,000 $2,000 $2,000 (Points : 10)

a.      $5,987

b.      $6,286

c.       $6,600

d.      $6,930

e.       $7,277

Question 6.6. (TCO B) Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in four equal installments at the end of each of the next 4 years. How large would your payments be?

a.      $3,704.02