BDC CPA Review Center Management Advisory Services Pre-Board Examinations 1.

R-Ball Corporation manufactures deluxe and standard racquetball racquets. R-Balls total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Deluxe Standard Total Cost Assembly 500 mach. hours 500 mach. hours $30,000 Inspections 350 150 $50,000 2,100 labor hours 1,900 labor hours R-Ball is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much inspections cost is assigned to deluxe racquets? A) $15,000. B) $23,750. C) $25,000. D) $35,000. 2. Zones Co. incurs $350,000 of overhead costs each year in its three main departments, machining ($200,000), inspections ($100,000) and packing ($50,000). The machining department works 4,000 hours per year, there are 500 inspections per year, and the packing department packs 500 orders per year. Information about Zoness two products is as follows: Product A Product B Machining hours 1,000 3,000 Inspections 100 500 Orders packed 350 650 Direct labor hours 1,700 1,800 Using ABC, how much overhead is assigned to Product A this year? A) $84,167 B) $121,154 C) $170,000 D) $175,000 3. Poodle Company manufactures two products, Mini A and Maxi B) Poodle's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Mini A Maxi B Direct labor hours 15,000 25,000 Machine setups 600 400 Machine hours 24,000 26,000 Inspections 800 700 Overhead applied to Mini A using activity-based costing is A) $1,800,000. B) $2,304,000. C) $2,496,000. D) $2,880,000. 4. OldMaid Inc) computed an overhead rate for machining costs ($5,000,000) of $10 per machine hour. Machining costs are driven by machine hours. If computed based on direct labor hours, the overhead rate for machining costs would be $20 per direct labor hour. The company produces two products, Gert and Mill. Gert requires 400,000 machine hours and 500,000 direct labor hours, while Mill requires 100,000 machine hours and 480,000 direct labor hours. Using activity-based costing, machining costs assigned to each product is Gert Mill A) $1,000,000 $4,000,000 B) $2,500,000 $2,500,000 C) $2,551,020 $2,448,980 D) $4,000,000 $1,000,000 5. Which of the following is a value-added activity? A) Inventory control B) Inspections 6. Just-in-time processing A) results in the opposite of a just-in-case philosophy. B) results in a pull approach. Item 7: Month January February March April In applying the high-low method, what is the fixed cost? A) $17,500 B) $36,000 Miles 80,000 50,000 70,000 90,000 C) Total Cost $ 96,000 80,000 94,000 130,000 $14,000 D) $50,000 C) Packaging D) Repair of machines

C) minimizes inventory storage and waiting time. D) all of the above.

8. Clark Company produces flash drives for computers, which it sells for $27 each. Each flash drive costs $20 of variable costs to make. During April, 1,700 drives were sold. Fixed costs for March were $1 per unit for a total of $1,900 for the month. How much is the contribution margin ratio? (Round to the nearest percent) A) 19% B) 26% C) 74% D) 81%

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9. Dodge Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $4.20 per unit for a total of $4,200 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Dodge Company? A) It is 10% higher than the original break-even point. B) C) D) It decreases about 12 units. It decreases about 30 units. It depends on the number of units the company expects to produce and sell.

10. Quaker Corporation sells its product for $40. The variable costs are $18 per unit. Fixed costs are $16,000. The company is considering the purchase of an automated machine that will result in a $2 reduction in unit variable costs and an increase of $5,000 in fixed costs. Which of the following is true about the break-even point in units? A) It will remain unchanged. B) It will decrease. C) It will increase. D) Undefined. 11. In 2008, Logan sold 1,000 units at $500 each, and earned net income of $40,000. Variable expenses were $300 per unit, and fixed expenses were $160,000. The same selling price is expected for 2009. Logan's variable cost per unit will rise by 10% in 2009 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000. How many units must Logan sell in 2009 to maintain the same income level as 2008? A) 882 B) 1,000 C) 1,056 D) 1,118 12. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). QChip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. Konerko's fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point? A) 6,000 B) 7,043 C) 10,000 D) 14,000 13. Innova Discs has two divisionsStandard and Premium. Each division has hundreds of different types of golf discs and disc golf products. The following information is available: Standard Division Premium Division Total Sales $400,000 $600,000 $1,000,000 Variable costs 280,000 360,000 Contribution margin Total fixed costs What is the break-even point in dollars? A) $81,360 B) $627,778 C) $645,714 $120,000 $240,000 $226,000 D) $664,706

14. Dye Company can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $96 and takes two machine hours to make and Fancy has a unit contribution margin of $120 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Dye do? A) Make Fancy which creates $24 more profit per unit than Plain does. B) C) D) Make Plain which creates $8 more profit per machine hour than Fancy does. Make Plain because more units can be made and sold than Fancy. The same total profits exist regardless of which product is made.

15. The one primary difference between variable and absorption costing is that under A) variable costing, companies charge the fixed manufacturing overhead as an expense in the current period. B) absorption costing, companies charge the fixed manufacturing overhead as an expense in the current period. C) variable costing, companies charge the variable manufacturing overhead as an expense in the current period. D) absorption costing, companies charge the variable manufacturing overhead as an expense in the current period. 16. Jack Company sells its product for $11,000 per unit. Variable costs per unit are: manufacturing, $6,000, and selling and administrative, $125. Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative. There was no beginning inventory at 1/1/07. Production was 20 units per year in 20072009. Sales was 20 units in 2007, 16 units in 2008, and 24 units in 2009. Income under variable costing for 2008 is A) $8,000. B) $14,000 C) $16,000 D) $22,000.

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17. Expected sales for next year for the Huxtable Division is 150,000 units. Bill Cosby, manager of the Huxtable Division, is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 150,000 units or 180,000 units. The Huxtable Division will have higher net income if Bill Cosby decides to produce A) 180,000 units if income is measured under absorption costing. B) C) D) 180,000 units if income is measured under variable costing. 150,000 units if income is measured under absorption costing. 150,000 units if income is measured under variable costing.

18. A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 4,000 units at a special unit price of $31. The normal price per unit is $46. In addition, a special stamping machine will have to be purchased for $8,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is A) $12,000. B) $4,000. C) $(12,000). D) $(4,000). 19. Clemente Inc incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $28,000 Direct labor 37,500 Variable overhead 42,000 Fixed overhead 54,000 An outside supplier has offered to sell Clemente the subcomponent for $9.50 a unit. If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $12,000. The increase (decrease) in net income from accepting the offer would be A) $500. B) $24,500. C) $(500). D) $(12,000). 20. Coggin Company gathered the following data about the three products that it produces:

Which of the products should be processed further? A) Product A B) Product B C) Product C

D) All three products

21. Walton, Inc. is unsure whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $37, while the cost of assembling each unit is estimated at $39. Unassembled units can be sold for $103, while assembled units could be sold for $135 per unit. What decision should Walton make? A) Sell before assembly; the company will save $7 per unit. B) C) D) Sell before assembly; the company will save $39 per unit. Process further; the company will save $7 per unit. Process further; the company will save $37 per unit.

22. Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Sales Value Additional Sales Value after Product Green lumber Rough lumber Sawdust at Split-off $79,800 62,000 51,000 Variable Costs $12,000 14,100 9,800 Further Processing $89,000 86,800 65,000

The additional profit that would result from processing rough lumber further is A) $10,700. B) $24,800. C) $72,700. D) $47,900.

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23. Sala Co. is contemplating the replacement of an old machine with a new one.

The following information has been gathered:

Old Machine New Machine Price $250,000 $500,000 Accumulated Depreciation 75,000 -0Remaining useful life 10 years -0Useful life -010 years Annual operating costs $200,000 $150,500 If the old machine is replaced, it can be sold for $20,000. Which of the following amounts is a sunk cost? A) $200,000 B) $150,500 C) $500,000 D) $175,000 24. Diversified Machines has four product lines, one of which reflects the following results: Sales $330,000 Variable expenses Contribution margin Fixed expenses 180,000 150,000 180,000

Net loss $(30,000) If this product line is eliminated, 40% of the fixed expenses can be eliminated and the other 60% will be allocated to other product lines. If management decides to eliminate this product line, the company's net income will A) increase by $30,000. B) decrease by $78,000. C) decrease by $48,000. D) increase by $72,000. 25. Abel Company produces three versions of baseball bats: wood, aluminum, and

hard rubber. A condensed segmented income statement for a recent period follows:
Wood Aluminum Hard Rubber Total Sales $500,000 $200,000 $ 65,000 $765,000 Variable expenses 325,000 140,000 58,000 523,000 Contribution margin 175,000 60,000 7,000 242,000 Fixed expenses 75,000 35,000 22,000 132,000 Net income (loss) $100,000 $ 25,000 $(15,000) $110,000 Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped? A) $125,000 B) $103,000 C) $105,000 D) $140,000 26. The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Construction Division: Capacity 200,000 board feet Board feet needed 60,000 Price per board foot $3.10 Outside price paid per bd. ft. $2.60 Variable production cost per bd. ft. $0.93 Variable selling cost per bd. ft. $1.00 If the Lumber Division sells to the Construction Division, $0.50 per board foot can be saved in shipping costs. If current outside sales are 130,000 board feet, what is the minimum transfer price that the Lumber Division could accept? A) $0.93 B) $1.43 C) $1.93 D) $3.10 27. Razmataz Company makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:

Expenses are paid in the month incurred. If the company has budgeted to sell 4,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October? A) $8,400 B) $9,200 C) $50,800 D) $9,800 28. A company budgeted unit sales of 116,000 units for January, 2008 and 125,000 units for February, 2008. The company has a policy of having an inventory of units on hand at the end of each month equal to 40% of next month's budgeted unit sales. If there were 10,000 units of inventory on hand on December 31, 2007, how many units should be produced in January, 2008 in order for the company to meet its goals? A) 156,000 units B) 116,000 units C) 76,000 units D) 166,000 units Page 4

29. A company's planned activity level for next year is expected to be 96,000

machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:
Variable Fixed Indirect materials $134,400 Depreciation $55,000 Indirect labor 192,000 Taxes 15,000 Factory supplies 19,200 Supervision 54,000 A flexible budget prepared at the 76,800 machine hours level of activity would show total manufacturing overhead costs of A) $331,480. B) $345,600. C) $385,480. D) $400,480. 30. Merck Pharmaceuticals is evaluating its Vioxx division, an investment center. The division has a $32,000 controllable margin and $300,000 of sales. How much will Merck's average operating assets be when its return on investment is 10%? A) $320,000 B) $352,000 C) $300,000 D) $268,000 31. Lou Alabassi is the North Division manager and his performance is evaluated by executive management based on Division ROI. The current controllable margin for North Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division? A) increase of 0.5% B) decrease of 0.5% C) decrease of 3.5% D) Remain unchanged. 32. Niceville Company had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company's operating assets total $800,000, and its required return is 10%. How much is the residual income? A) $120,000 B) $20,000 C) $80,000 D) $320,000 33. Weiser Company uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is $64,000 variable and $180,000 fixed. If Weiser had actual overhead costs of $250,000 for A) $2,000 UF B) $2,000 F C) $6,000 UF D) $8,000 F 34. ToolTime has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, ToolTime used 3,850 hours of labor at a total cost of $47,700. ToolTime's labor quantity variance is A) $1,500 U. B) $1,030 F. C) $1,800 F. D) $1,930 F. 35. A company developed the following per-unit standards for its product: 2 gallons of direct materials at $3 per gallon. Last month, 2,800 gallons of direct materials were purchased for $7,980. The direct materials price variance for last month was A) $7,980 favorable. B) $210 favorable. C) $420 favorable. D) $420 unfavorable. 36. Cola Co. manufactures a product with a standard direct labor cost of two hours at $24.00 per hour. During July, 2,000 units were produced using 4,200 hours at $24.40 per hour. The labor price variance was A) $1,680 U. B) $6,480 U. C) $6,480 F. D) $4,800 U. 37. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for $3,800. The direct materials price variance for last month was A) $3,800 favorable. B) $200 favorable. C) $100 favorable. D) $200 unfavorable. 38. The total variance is $25,000. The total materials variance is $10,000. The total labor variance is twice the total overhead variance. What is the total overhead variance? A) $2,500 B) $5,000 C) $7,500 D) $10,000 39. The predetermined overhead rate for Weed-B-Gone is $8, comprised of a variable overhead rate of $5 and a fixed rate of $3. The amount of budgeted overhead costs at normal capacity of $240,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $8. Actual overhead for June was $15,800 variable and $9,100 fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total overhead variance is A) $4,900 F. B) $900 F. C) $900 U. D) $4,900 U. 40. In Sonic Corporation's income statement, they report gross profit of $50,000 at standard and the following variances: Materials price $ 420 F Materials quantity 600 F Labor price 420 U Labor quantity 1,000 F Overhead 900 F Sonic would report actual gross profit of A) $46,660. B) $47,500. C) $52,500. D) $53,340. Page 5

41. The perspectives included in the balanced scorecard approach include all of the following except the A) internal process perspective. C) learning and growth perspective. B) capacity utilization perspective. D) customer perspective. 42. The overhead volume variance is A) actual overhead less overhead budgeted for actual hours. B) C) D) actual overhead less overhead budgeted for standard hours allowed. overhead budgeted for actual hours less applied overhead. the fixed overhead rate times the difference between normal capacity hours and standard hours allowed.

43. The following information was taken from the annual manufacturing overhead cost budget of Coen Company. Variable manufacturing overhead costs $46,200 Fixed manufacturing overhead costs $27,720 Normal production level in labor hours 23,100 Normal production level in units 5,775 Standard labor hours per unit 4 During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $75,600. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's total overhead rate is A) $1.20. B) $2.00. C) $3.20. D) $3.27. 44. The following information was taken from the annual manufacturing overhead cost budget of Coen Company. Variable manufacturing overhead costs $46,200 Fixed manufacturing overhead costs $27,720 Normal production level in labor hours 23,100 Normal production level in units 5,775 Standard labor hours per unit 4 During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $75,600. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Coen's volume overhead variance is A) $840 U. B) $3,080 U. C) $3,920 U. D) $11,200 U. 45. The balanced scorecard approach A) uses only financial measures to evaluate performance. B) C) D) uses rather vague, open statements when setting objectives in order to allow managers and employees flexibility. normally sets the financial objectives first, and then sets the objectives in the other perspectives to accomplish the financial objectives. evaluates performance using about 10 different perspectives in order to effectively incorporate all areas of the organization.

46. Benaflek Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was $(450). Annual cost savings were: $5,000 for year 1; $4,000 for year 2; and $3,000 for year 3. The amount of the initial investment was Present Value Year of of an Annuity 1 at 12% of 1 at 12% 1 .893 .893 2 .797 1.690 3 .712 2.402 A) $10,239. B) $9,158. C) $10,058. D) $9,339. 47. A project with a profitability index of 1.156 also has net cash flows with a present value of $138,720. The project's internal rate of return was 10%. The initial investment was A) $132,000. B) $126,109. C) $120,000. D) $160,360. 48. Cleaners, Inc. is considering purchasing equipment costing $30,000 with a 6-year useful life. The equipment will provide cost savings of $7,300 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. Present Value of an Annuity of 1 Period 8% 9% 10% 11% 12% 15% 6 4.623 4.486 4.355 4.231 4.111 3.784 What is the approximate net present value of this investment? A) $13,800 B) $1,792 C) $886 D) $2,748

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49. Carr Company is considering two capital investment proposals. Estimates regarding each project are provided: Project Soup Project Nuts Initial investment $600,000 $900,000 Annual net income Net annual cash inflow Estimated useful life Salvage value 30,000 150,000 5 years -063,000 213,000 6 years -0-

The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 D) 9%.

The internal rate of return for Project Nuts is approximately A) 10%. B) 11%. C) 12%.

50. A project has an annual rate of return of 15%. The project cost $60,000, has a 5-year useful life, and no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, was A) $21,000. B) $16,500. C) $31,800. D) $9,000. 51. A company is considering purchasing factory equipment that costs $480,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $135,000 and annual operating expenses exclusive of depreciation expense are expected to be $57,000. The straight-line method of depreciation would be used. If the equipment is purchased, the annual rate of return expected on this equipment is A) 32.5%. B) 3.8%. C) 7.5%. D) 16.3%. 52. A company is considering purchasing factory equipment that costs $1,459,200 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $255,000 and annual operating expenses exclusive of depreciation expense are expected to be $27,000. The straight-line method of depreciation would be used. The cash payback period on the equipment is A) 12.8 years. B) 11.8 years. C) 6.4 years. D) 5.4 years. 53. DV's Pest Control Products has the following information available: Net Income $44,000 Cash Provided by Operations 26,000 Cash Sales 65,000 Capital Expenditures 6,000 Dividends Paid 4,000 What is DV's free cash flow? A) $22,000 B) $20,000 C) $16,000

D) $34,000

54. The cost of goods sold during the year was $162,000. Merchandise inventory decreased by $8,000 during the year and accounts payable decreased by $5,000 during the year. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total A) $167,000. B) $159,000. C) $149,000. D) $175,000. 55. Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of $9,000,000 for the year. The average inventory for the year amounted to $2,000,000. The average number of days in inventory during the year was A) 122 days. B) 81 days. C) 61 days. D) 35 days. 56. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by shortterm debt and collection of accounts receivable have on the ratio?

57. Fall Clothing Store had a balance in the Accounts Receivable account of $812,000 at the beginning of the year and a balance of $855,000 at the end of the year. Net credit sales during the year amounted to $5,836,000. The average collection period of the receivables in terms of days was A) 50.1 days. B) 52.1 days. C) 365 days. D) 52.9 days.

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Use the following to answer questions 58-59: The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.

58. What is the return on common stockholders' equity for this company? A) 7.3% B) 16.1% C) 23.5% 59. What is the price-earnings ratio for this company? A) 6 times B) 4.2 times

D) 53.3%

C) 8 times

D) 4.8 times

60. Silva Corporation reported net sales of $210,000, $406,000, and $524,000 in the years 2007, 2008, and 2009 respectively. If 2007 is the base year, what is the trend percentage for 2009? A) 129.1% B) 149.5% C) 193.3% D) 249.5%

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61. A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and requires compensating balances of 10 percent of the face value of the loan. The effective annual interest rate associated with this loan is A) 15.4 percent. B) 13.3 percent. C) 13.6 percent. D) 12 percent. 62. Tangshan Mining was extended credit terms of 3/15 net 30 EOM. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is 75.25 percent. If the firm were able to stretch its accounts payable to 60 days without damaging its credit rating, the cost of giving up the cash discount would only be A) 22.58%. B) 21.90%. C) 18.25%. D) 18.81%. 63. A firm has an operating cycle of 170 days, an average payment period of 50 days, and an average age of inventory of 145 days. The firm's average collection period is ________ days. A) 120 B) 25 C) 95 D) 75 64. The Steel Works, Inc. is required to carry a minimum of 40 days' raw steel, which is 250 tons. It takes 15 days between order and delivery. At what level of steel would Steel Works reorder? A) 667 tons B) 3,750 tons C) 600 tons D) 344 tons 65. The General Chemical Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is $150 per order. The firm uses the chemical at a constant rate throughout the year. The chemical's economic order quantity is A) 9,487 gallons. B) 1,900 gallons. C) 32,863 gallons. D) 11,619 gallons. 66. A firm is considering relaxing credit standards, which will result in annual sales increasing from $1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, and the average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm's required return on investments is 20 percent. The firm's cost of marginal investment in accounts receivable is A) $5,556. B) $12,153. C) $152,778. D) $9,943. 67. If a corporation has an average tax rate of 40 percent, the approximate annual, after-tax cost of debt for a 10-year, 8 percent, $1,000 par value bond selling at $1,150 is A) 8 percent. B) 6 percent. C) 4.8 percent. D) 3.6 percent. 68. A firm has determined it can issue preferred stock at $115 per share par value. The stock will pay a $12 annual dividend. The cost of issuing and selling the stock is $3 per share. The cost of the preferred stock is A) 10.4 percent. B) 10.7 percent. C) 6.4 percent. D) 12 percent. 69. A firm has common stock with a market price of $100 per share and an expected dividend of $5.61 per share at the end of the coming year. A new issue of stock is expected to be sold for $98, with $2 per share representing the underpricing necessary in the competitive capital market. Flotation costs are expected to total $1 per share. The dividends paid on the outstanding stock over the past five years are as follows:

The cost of this new issue of common stock is A) 7.7 percent. B) 12.8 percent. C) 10.8 percent. D) 5.8 percent. 70. A firm expects to have available $500,000 of earnings in the coming year, which it will retain for reinvestment purposes. Given the following target capital structure, at what level of total new financing will retained earnings be exhausted?

A) $1,000,000. B) $500,000.

C) $1,500,000. D) $800,000.

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Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. A A B D C B D B B A D A C D C D A B B C D A B B A A A B B D A A D B B B D A D A C B B C C A B B C C B D C A C A C B B B C C C B B C B B D D

61) 62) 63) 64) 65) 66) 67) 68) 69) 70)

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