1Which organization forms give their owners limited liability?

A.Corporations and limited liability companies give owners limited liability.

B.Limited partnerships provide limited liability for the general partners, but not for the limited partners.

C.Limited partnerships provide limited liability for the limited partners, but not for the general partners.

2. Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than their own. What strategies are available to shareholders to help ensure that managers are motivated to act this way?

A.Ensure that employees are paid a percentage of the company's net income.

B.Ensure that underperforming managers are fired.

C.Ensure that employees are paid with company stock and/or stock options.

D.Mount hostile takeovers.

E.Write contracts that ensure that the interests of the managers and shareholders are closely aligned

3. What four financial statements can be found in a firm's 10-K filing? What checks are there on the accuracy of these statements?

A.

Balance sheet, asset and liability statement, statement of cash flows, and statement of stockholders' equity

B.

Balance sheet, income statement, statement of cash flows, and Statement of income and expenses

C.

Balance sheet, income statement, statement of cash flows, and statement of stockholders' equity

D.

Balance sheet, cash budget, earnings statement, and statement of stockholders' equity

4. Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2015 (file in October 2015). Answer the following questions from their balance sheet:

a. How much cash did Costco have at the end of the fiscal year?

b. What were Costco's total assets?

c. What were Costco's total liabilities? How much debt did Costco have?

d. What was the book value of Costco equity?

a. How much cash did Costco have at the end of the fiscal year?

At the end of the fiscal year, Costco had cash and cash equivalents of

$nothin

million. (Round to one decimal place.)

5. See Table 2.5

LOADING…

showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco repurchases

22

million shares each year from

20132013

to

20162016.

What would be its earnings per share in

20162016 ?

(Assume Mydeco pays for the shares using its available cash and that Mydeco earns no interest on its cash balances.)

(Select the best choice below.)

A.

A repurchase does not impact earnings directly, so any change to EPS will come from a reduction in shares outstanding.

20162016

shares outstanding

equals 55 million minus 4 times 2 million equals 47 million=55 million−4×2 million=47 million ,

EPS equals $ 12.7 million divided by 47 million equals $ 0.27EPS=$12.7 million/47 million=$0.27.

B.

A repurchase does not impact earnings directly, so any change to EPS will come from a reduction in shares outstanding.

20162016

shares outstanding

equals 55 million minus 4 times 2 million equals 47 million=55 million−4×2 million=47 million ,

EPS equals $ 21.7 million divided by 47 million equals $ 0.46EPS=$21.7 million/47 million=$0.46.

C.

A repurchase does not impact earnings directly, so any change to EPS will come from an increase in shares outstanding.

20162016

shares outstanding

equals 55 million plus 4 times 2 million equals 53 million=55 million+4×2 million=53 million ,

EPS equals $ 12.7 million divided by 53 million equals $ 0.24EPS=$12.7 million/53 million=$0.24.

D.

A repurchase does not impact earnings directly, so any change to EPS will come from an increase in shares outstanding.

20162016

shares outstanding

equals 55 million plus 4 times 2 million equals 53 million=55 million+4×2 million=53 million ,

EPS equals $ 21.7 million divided by 53 million equals $ 0.41EPS=$21.7 million/53 million=$0.41.

6. Suppose a firm's tax rate is

40 %40%.

a. What effect would a

$ 9.15$9.15

million operating expense have on this year's earnings? What effect would it have on next year's earnings?

b. What effect would a

$ 7.7$7.7

million capital expense have on this year's earnings if the capital expenditure is depreciated at a rate of

$ 1.54$1.54

million per year for five years? What effect would it have on next year's earnings?

a. What effect would a

$ 9.15$9.15

million operating expense have on this year's earnings? What effect would it have on next year's earnings? (Select all the choices that apply.)

A.

A

$ 9.15$9.15

million operating expense would be immediately expensed, increasing operating expenses by

$ 9.15$9.15

million. This would lead to a reduction in taxes of

40 % times $ 9.15 million equals $ 3.66 million40%×$9.15 million=$3.66 million.

B.

A

$ 9.15$9.15

million operating expense would be immediately expensed, increasing operating expenses by

$ 9.15$9.15

million. This would lead to an increase in taxes of

40 % times $ 9.15 million equals $ 3.66 million40%×$9.15 million=$3.66 million.

C.

Earnings would decline by

$ 9.15 million minus $ 3.66 million equals $ 5.49 million$9.15 million−$3.66 million=$5.49 million.

There would be no effect on next year's earnings.

D.

Earnings would decline by

$ 9.15 million minus $ 3.66 million equals $ 5.49 million$9.15 million−$3.66 million=$5.49 million.

The same effect would be seen on next year's earning

7. See Table

LOADING…

showing financial statement data and stock price data for Mydeco Corp.

a. From

20122012

to

20162016 ,

what was the total cash flow that Mydeco generated from operations?

b. What fraction of the total in

(a )

was spent on capital expenditures?

c. What fraction of the total in

(a )

was spent paying dividends to shareholders?

d. What was Mydeco's total retained earnings for this period?

a. From

20122012

to

20162016 ,

what was the total cash flow that Mydeco generated from operations?

The total cash flows from operations was

$nothing

million. (Round to one decimal place.)

8. Find online the annual 10-K report for Costco Wholesale Corporation (COST) for fiscal year 2015 (filed in October 2015).

a. Which auditing firm certified these financial statements?

b. Which officers of Costco certified the financial statements?

a. Which auditing firm certified these financial statements? (Select the best choice below.)

A.

KPMG LLP certified Costco's financial statements.

B.

Deloitte & Touche LLP certified Costco's financial statements.

C.

Ernst & Young LLP certified Costco's financial statements.

D.

PricewaterhouseCoopers LLP certified Costco's financial statements.

9.

Honda Motor Company is considering offering a

$ 2 comma 000$2,000

rebate on its minivan, lowering the vehicle's price from

$ 30 comma 000$30,000

to

$ 28 comma 000$28,000.

The marketing group estimates that this rebate will increase sales over the next year from

40 comma 00040,000

to

55 comma 00055,000

vehicles. Suppose Honda's profit margin with the rebate is

$ 6 comma 000$6,000

per vehicle. If the change in sales is the only consequence of this decision, what are its benefits and costs? Is it a good idea?

The benefits are

$nothing

million. (Round to one decimal place.)

10. Suppose the current market price of corn is

$ 3.38$3.38

per bushel. Your firm has a technology that can convert 1 bushel of corn to 3 gallons of ethanol. If the cost of conversion is

$ 1.47$1.47

per bushel, at what market price of ethanol does conversion become attractive?

The price at which the conversion becomes attractive is

$nothing

per gallon. (Round to the nearest cent.)

11. You run a construction firm. You have just won a contract to build a government office building. It will take one year to construct it requiring an investment of

$ 10.68$10.68

million today and

$ 5.00$5.00

million in one year. The government will pay you

$ 23.50$23.50

million upon the building's completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is

11 %11%.

a. What is the NPV of this opportunity?

b. How can your firm turn this NPV into cash today?

a. What is the NPV of this opportunity?

The NPV of this opportunity is

$nothing

million. (Round to two decimal places.)

12. Your firm has identified three potential investment projects. The projects and their cash flows are shown here: (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)

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