11. Whit a Subchapter S corporation
A. corporate income is taxed as directed income to stockholders
B. stockholders have the same liability as members of a partnership
C. the number of stockholders is unlimited
D. life of the corporation is limited
12. Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the
A. expectations hypothesis
B. segmentation theory
C. liquidity premium
D. theory of industry supply and demand for bonds
13. In examining the liquidity ratios, the primary emphasis is the firm's
A. ability to effectively employ its resources
B. overall debt position
C. ability to pay short-term obligations on time
D. ability to earn an adequate return
14. A corporation's board of directors:
A. is selected by and can be removed by management
B. can be voted out of power by the shareholders
C. has a lifetime appointment to the board
D. is selected by a vote of all corporate stakholders
15. What is your monthly mortgage payment on a loan for $150,000, at 6% for 20 years
A. $899.33
B. $1,265.79
C. $1,074.65
D. $1,089.91
16. Assuming a tax rate of 50%, the after-tax cost of a $200,000 dividend payment is
A. $200,000
B. $100,000
C. $-100,000
D. none of the above
17. The ABC Corp. had net income before taxes of $400,000 and sales of $2,000,000. If it is in the 50% tax bracket its after-tax profit margin is
A. 5%
B. 10%
C. 20%
D. 25%
18. A firm has a debt to equity ratio of 50%, debt of $300,000 and net income of $90,000. the return on equity is
A. 60%
B. 15%
C. 30%
D. not enough information
19. In general, the larger the portion of a firm's sales that are on credit, the
A. lower will be the firm's need to borrow
B. higher will be the firms need to borrow
C. more rapidly credit sales will be paid off
D. more the firm can buy raw materials on credit
20. If a firm has a break-even point of 20,000 units and the contribution margin on the firm's single product is $3.00 per unit and fixed costs are $60,000, what will the forms's net income be at sales of 30,000 units?
A. $90,000
B. $30,000
C. $15,000
D. $45,000
See my Part 1 answer
11. The answer to this question is A. With a Subchapter S corporation, corporate income is taxed as directed income to stockholders. To understand this, you need to know that a Subchapter S corporation is a type of corporation that elects to pass corporate income, deductions, and tax credits through to its shareholders for federal tax purposes. This means that the corporation itself does not pay income tax, but instead, the income is "passed through" to the individual stockholders who report it on their personal tax returns.
12. The answer to this question is B. The theory that suggests that the term structure of interest rates is determined by the behavior of various types of financial institutions is called the segmentation theory. This theory posits that different types of financial institutions have different preferences for different maturities of debt, and as a result, the interest rates for each maturity segment are determined independently.
13. The answer to this question is C. When examining the liquidity ratios of a firm, the primary emphasis is on the firm's ability to pay short-term obligations on time. Liquidity ratios, such as the current ratio and the quick ratio, measure a company's ability to meet its short-term financial obligations with its current assets. These ratios assess the company's ability to convert its current assets into cash to pay off its short-term debts.
14. The answer to this question is B. The board of directors of a corporation can be voted out of power by the shareholders. Shareholders of a corporation have the right to vote and elect members of the board of directors. If shareholders are dissatisfied with the performance or decisions of the board, they can vote to remove them from their positions and elect new members.
15. To calculate the monthly mortgage payment on a loan for $150,000 at 6% for 20 years, you can use a mortgage payment calculator or a formula. Using the formula, you can multiply the loan amount ($150,000) by the monthly interest rate (6% divided by 12) and then divide it by 1 minus (1 plus the monthly interest rate) to the power of -total number of months (20 years multiplied by 12 months). The answer is A. $899.33.
16. The after-tax cost of a $200,000 dividend payment, assuming a tax rate of 50%, is B. $100,000. To calculate the after-tax cost, you need to multiply the dividend payment amount by (1 - tax rate). In this case, $200,000 multiplied by (1 - 0.5) equals $100,000.
17. The after-tax profit margin of the ABC Corp., given a net income before taxes of $400,000 and sales of $2,000,000, and being in a 50% tax bracket, is D. 25%. To calculate the after-tax profit margin, you divide the net income after taxes (net income before taxes multiplied by (1 - tax rate)) by the sales. In this case, $400,000 multiplied by (1 - 0.5) divided by $2,000,000 equals 25%.
18. The return on equity for a firm with a debt to equity ratio of 50%, debt of $300,000, and net income of $90,000 is D. not enough information. To calculate the return on equity, you need to divide the net income by the equity. However, the equity information is not provided in the question, so it is not possible to calculate the return on equity.
19. The answer to this question is B. In general, the larger the portion of a firm's sales that are on credit, the higher will be the firm's need to borrow. When a firm extends credit to its customers, it effectively lends money to them. This means that the firm needs to finance its operations while waiting for customers to pay their credit sales, increasing the need for borrowing to cover operating costs and maintain liquidity.
20. To calculate the firm's net income at sales of 30,000 units, given a break-even point of 20,000 units, a contribution margin of $3.00 per unit, and fixed costs of $60,000, you can use the formula Net Income = (Sales - Variable Costs) - Fixed Costs. The variable costs are calculated by multiplying the contribution margin per unit by the number of units sold. In this case, the sales are 30,000 units, so the net income is (30,000 * $3.00) - $60,000, which equals B. $30,000.