Finance 550
Practice Exam Questions and Answers
1. The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.
A. $4,600,000; $3,900,000
B. $4,600,000; $3,125,000
C. $5,000,000; $3,125,000
D. $5,000,000; $3,900,000
E. $6,500,000; $3,900,000
Book value = ($725,000 + $1,375,000) + $2,500,000 = $4,600,000
Market value = $1,900,000 + $2,000,000 = $3,900,000
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 1-4
Ross - Chapter 01
Section: 1.4
Topic: Proxy
2. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360? [pic]
A. 28.25 percent
B. 31.09 percent
C. 33.62 percent
D. 35.48 percent
E. 39.00 percent
Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($211,360) = $104,680.40
Average tax rate = $104,680.40/$311,360 = 33.62 percent
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 1-3
Ross - Chapter 01
Section: 1.5
Topic: NASDAQ
3. The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000? [pic]
A. $8,080
B. $8,130
C. $8,155
D. $8,170
E. $8,190
Additional tax = .34($100,000 - $97,800) + .39($97,800 + $21,000 - $100,000) = $8,080
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 2-1
Ross - Chapter 02 #57
Section: 2.1
Topic: GAAP
4. Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000 of which 60 percent is payable within the next year. The firm net fixed assets of $161,900. What is the
1. The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.
A. $4,600,000; $3,900,000
B. $4,600,000; $3,125,000
C. $5,000,000; $3,125,000
D. $5,000,000; $3,900,000
E. $6,500,000; $3,900,000
Book value = ($725,000 + $1,375,000) + $2,500,000 = $4,600,000
Market value = $1,900,000 + $2,000,000 = $3,900,000
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 1-4
Ross - Chapter 01
Section: 1.4
Topic: Proxy
2. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360? [pic]
A. 28.25 percent
B. 31.09 percent
C. 33.62 percent
D. 35.48 percent
E. 39.00 percent
Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($211,360) = $104,680.40
Average tax rate = $104,680.40/$311,360 = 33.62 percent
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 1-3
Ross - Chapter 01
Section: 1.5
Topic: NASDAQ
3. The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000? [pic]
A. $8,080
B. $8,130
C. $8,155
D. $8,170
E. $8,190
Additional tax = .34($100,000 - $97,800) + .39($97,800 + $21,000 - $100,000) = $8,080
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 2-1
Ross - Chapter 02 #57
Section: 2.1
Topic: GAAP
4. Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000 of which 60 percent is payable within the next year. The firm net fixed assets of $161,900. What is the