Acct 504 Quiz 1
1. Question : (TCO A) Which of the following statements is CORRECT?
Student Answer: One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. 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.” Corporations of all types are subject to the corporate income tax. Instructor Explanation: Explanation: Ch 1: a is correct, all others are incorrect a: True b: false- corporate shares provide …show more content…
Question : (TCO G) Lucky Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would Lucky Corp. need in order to achieve the 15% ROE, holding everything else constant?
Student Answer: 7.57%
7.95% 8.35% 8.76% 9.20% Instructor Explanation: $312,900*15%=46,935; 46,935/$620,000=7.57%
Points Received: 0 of 10 Comments:
4. Question : (TCO B) Suppose a state of Delaware 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?
Student Answer: $585.43
$614.70 $645.44 $677.71 $711.59 Instructor Explanation: Chapter 4
Using Excel or a calculator, your inputs and outputs are as follows: fv 1000 n 10 r 0.055 pmt 0 beg/end 0 pv ($585.43)
You can also use the financial tables to solve this problem.
Points Received: 10 of 10 …show more content…
Question : (TCO C) Assume that to cool off the economy and decrease expectations for inflation, the Federal Reserve tightened the money supply, causing an increase in the risk-free rate, rRF. Investors also became concerned that the Fed's actions would lead to a recession, and that led to an increase in the market risk premium, (rM - rRF). Under these conditions, with other things held constant, which of the following statements is most correct?
Student Answer: The required return on all stocks would increase by the same amount. The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0. Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices. The prices of all stocks would decline, but the decline would be greatest for high-beta stocks. The prices of all stocks would increase, but the increase would be greatest for high-beta stocks. Instructor Explanation: a: False- depends on individual stock beta b: False- larger beta- greater the increase c: False- not likely in equilibrium d: True- higher discount rates- lower
Student Answer: One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. 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.” Corporations of all types are subject to the corporate income tax. Instructor Explanation: Explanation: Ch 1: a is correct, all others are incorrect a: True b: false- corporate shares provide …show more content…
Question : (TCO G) Lucky Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would Lucky Corp. need in order to achieve the 15% ROE, holding everything else constant?
Student Answer: 7.57%
7.95% 8.35% 8.76% 9.20% Instructor Explanation: $312,900*15%=46,935; 46,935/$620,000=7.57%
Points Received: 0 of 10 Comments:
4. Question : (TCO B) Suppose a state of Delaware 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?
Student Answer: $585.43
$614.70 $645.44 $677.71 $711.59 Instructor Explanation: Chapter 4
Using Excel or a calculator, your inputs and outputs are as follows: fv 1000 n 10 r 0.055 pmt 0 beg/end 0 pv ($585.43)
You can also use the financial tables to solve this problem.
Points Received: 10 of 10 …show more content…
Question : (TCO C) Assume that to cool off the economy and decrease expectations for inflation, the Federal Reserve tightened the money supply, causing an increase in the risk-free rate, rRF. Investors also became concerned that the Fed's actions would lead to a recession, and that led to an increase in the market risk premium, (rM - rRF). Under these conditions, with other things held constant, which of the following statements is most correct?
Student Answer: The required return on all stocks would increase by the same amount. The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0. Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices. The prices of all stocks would decline, but the decline would be greatest for high-beta stocks. The prices of all stocks would increase, but the increase would be greatest for high-beta stocks. Instructor Explanation: a: False- depends on individual stock beta b: False- larger beta- greater the increase c: False- not likely in equilibrium d: True- higher discount rates- lower