HW-1461 Finance MCQ - 90551

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1) A company's current ratio and acid-test ratios are both greater than 1. If obsolete inventory is written off, this would... A. increase the acid-test ratio B. decrease the acid-test ratio C. increase net working capital. D. Decrease the current ratio. 2) An increase in the market price of a company's common stock will immediately affect it... A. dividend yield ratio B. Earnings per share of common stock. C. Dividend payout ratio. D. Debt-to-equity ratio. 3) VIM company purchased $100,000 in inventory from its suppliers on credit terms. The company's acid-test ratio would most likely... A. be unchanged. B. Be impossible to determine without more information. C. increase. D. Decrease. Use the following information to answer the next 4 questions: 4) Financial statements for Larkins Company appear below: Larkins company Statement of Financial position December 31, Year 2 and Year 1. (Dollars in thousand) Current assets: Cash and marketable securities Yr2: 180 Yr1:180 Accounts receivable, net Yr2: 210 Yr1: 180 Inventory Yr2: 130 Yr1: 120 Prepaid expenses Yr2: 50 Yr1: 50 Total current assets Yr2: 570 Yr1: 530 Noncurrent assets: Plant and equipment, net Yr2: 1530 Yr1: 1480 Total assets: Yr2: 2110 Yr1: 2010 Current liabilities: Accounts payable Yr2: 100 Yr1: 130 Accrued liabilities: Yr 2: 60 Yr1: 60 Notes payable, short term Yr 2: 90 Yr1: 120 Total current liabilities: Yr2: 125 Yr1: 310 Noncurrent liabilities: Bonds payable Yr2: 480 Yr1: 500 Total liabilities: Yr2: 730 Yr1: 810 Stockholders' equity: preferred stock, $20 par, 10% Yr2: 120 Yr1: 120 Common stock, $10 par Yr2: 180 Yr1: 180 Additional paid=-in capital -common stock Yr2: 240 Yr1: 240 Retained earnings Yr2: 840 Yr1: 660 Total stockholders' equity Yr2: 1,380 Yr1: 1200 Total liabilities and stockholders' equity Yr2: 2110 Yr1: 2010 Larkins Company Income Statement For the Year ended December 31, Year 2 (dollars in thousands) Sales (all on account) 2,760 Cost of goods sold 1,930 Gross margin 830 Selling and administrative expense 330 net operating income 500 interest expense 50 Net income before taxes 450 Income taxes (30%) 135 Net income 315 Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150. Larkins Company's dividend payout ratio for Year 2 was closest to: A. 40.6% B. 14.8% C. 42.9% D. 24.6% 5) Larkins Companys return on common stockholders' equity for Year 2 was closest to: A. 23.5% B. 24.4% C. 25.9% D. 26.9% 6) Larkins Company's earnings per share of common stock for year 2 was closest to: A. $17.50 B. $25.00 C. $7.21 D. $16.83 7) Larkins Company's book value per share at the end of Year 2 was closest to: A. $10.00 B. $23.33 C. $70.00 D. $76.67 8) Products A, B, and C are produced from a single raw material input. The raw material costs $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. Product A should be... A. sold at the split-off point, since further processing would result in a loss of $0.50 per unit. B. Sold at the split-off point, since further processing will result in a loss of $2,500 each period. C.processed further, since this will increase profits by $2,500 each period. D. Processed further, since this will increase profits by $12,500 each period. 9) (ignore income taxes in this problem.) The following data pertain to an investment: Cost of the investment: $18,955 Life of the project: 5 year Annual cost savings: $5,000 Estimated salvage value: $1,000 Discount rate: 10% The net present value of the proposed investment is? A. $3,355 B. $621 C. $0 D. $(3,430)
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