4-Financial statements for Larkins Company appear below:
Larkins Company
Statement of Financial Position December 31, Year 2 and Year 1 (dollars in thousands)
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Year 2 |
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Year 1 |
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4-Current assets: |
1,540 |
|
1,480 |
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Total assets |
$2,110 |
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$2,010 |
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Current liabilities: |
480 120 |
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500 120 |
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Larkins Company |
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Sales (all on account) |
$2,760 |
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.
4. Larkins Company’s dividend payout ratio for Year 2 was closest to:
A. 40.6% B. 24.6% C. 42.9% D. 14.8%
5. The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam.
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Sales (6,500 Tams at $130 each) |
$845,000 |
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Variable cost of sales |
390,000 |
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Variable distribution costs |
65,000 |
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Fixed advertising expense |
275,000 |
|
Salary of product line manager |
25,000 |
|
Fixed manufacturing overhead |
145,000 |
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Net operating loss |
$(55,000) |
Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product isn’t dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturing costs of the company.
Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be a
A. $65,000 decrease. B. $70,000 increase. C. $55,000 decrease. D$90,000decrease.
6. Fonics Corporation is considering the following three competing investment proposals:
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Aye |
Bee |
Cee |
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Initial investment required |
$62,000 |
$74,000 |
$95,000 |
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Net present value |
$10,000 |
$8,000 |
$12,000 |
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Internal rate of return |
15% |
17% |
18% |
Using the project profitability index, how would the above investments be ranked (highest to lowest)?
A. Cee, Bee, Aye B. Aye, Bee, Cee C. Aye, Cee, Bee D. Bee, Cee, Aye
7. Which of the following would be classified as a financing activity on the statement of cash flows?
A. Dividends received on investments in another company’s common stock
B. Dividends paid to shareholders of the company on the company’s common stock
C. Interest received on investments in another company’s bonds
D. Interest paid on bonds issued by the reporting company
8. (Ignore income taxes in this problem.) The following data pertain to an investment:
Cost of the investment $18,955. Life of the project 5 years. Annual cost savings $5,000
Estimated salvage value $1,000. Discount rate 10%
The net present value of the proposed investment is
A. $621. B. $0. C. $3,355. D. $(3,430).
9. A project profitability index greater than zero for a project indicates that
A. the discount rate is less than the internal rate of return.
B. the project is unattractive and shouldn’t be pursued.
C. the company should reevaluate its discount rate.
D. there has been a calculation error.
10. Centerville Company’s debt-to-equity ratio is 0.60 Total assets are $320,000, current assets are $170,000, and working capital is $80,000. Centerville’s long-term liabilities must be
A. $120,000. B. $80,000. C. $90,000. D. $30,000.
11. Kava Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as K65. Data concerning this product are given below:
Per Unit
Selling price $180–Direct materials $29–Direct labor $5—Variable manufacturing overhead $4
Fixed manufacturing overhead $21—-Variable selling expense $2—
Fixed selling and administrative expense $17
The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost. (Source: CMA, adapted)
The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order, and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company wouldn’t be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company shouldn’t go?
A. $59 B. $38 C. $180 D. $78
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12-Financial statements for Larkins Company appear below:
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13. Brittman Corporation makes three products that use the current constraint-a particular type of machine. Data concerning those products appear below:
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IP |
NI |
YD |
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Selling price per unit |
$183.57 |
$207.74 |
$348.15 |
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Variable cost per unit |
$144.42 |
$155.04 |
$269.50 |
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Minutes on the constraint |
2.90 |
3.40 |
5.50 |
Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?
A. $15.50 per minute B. $13.50 per minute C. $78.65 per unit D. $39.15 per unit
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14-The most recent balance sheet and income statement of Teramoto Corporation appear below:
The net cash provided by (used by) operations for the year was |
A. $117. B. $52. C. $112. D. $30.
