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Chapter 2 Homework Study questions
Terms in this set (6)
You are a shareholder in a C corporation. The corporation earns $2.26 per share before taxes. Once it has paid taxes, it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 21%, and your personal tax rate on (both dividend and non-dividend) income is 20%. How much is left for you after all taxes are paid?
The amount that remains is _________ per share.
Global used $19 million of its available cash to repay $19 million of its long-term debt.
Long-term liabilities would _________ by _____ million, and cash would _________ by the same amount. The book value of equity would be unchanged.
19, decrease, decrease
A warehouse fire destroyed $5 million worth of uninsured inventory. Inventory would ___________ by $___ million, as would the book value of equity.
Global used $6 million in cash and $6 million in new long-term debt to purchase a $12 million building.
Long-term assets would _______ by $____ million, cash would _______ by $__ million, and long-term liabilities would __________ by $__ million. There would be no change to the book value of equity.
increase, 12, decrease, 6
large customer owing $4 million for products it already received declared bankruptcy, leaving no possibility that Global would ever receive payment.
_______________ would _________ by $__ million, as would the book value of equity
Accounts receivable, decrease, 4
What was the change in Global Conglomerate's book value of equity from 2017 to 2018 according to Table 2.1 LOADING...? Does this imply that the market price of Global's shares increased in 2018? Explain.
(Select all the choices that apply.)
Global Conglomerate's book value of equity increased by $1 million from 2017 to 2018. An increase in book value does not necessarily indicate an increase in Global's share price.
Global Conglomerate's book value of equity increased by $1 million from 2017 to 2018. An increase in book value necessarily indicates an increase in Global's share price.
The market value of a stock does not depend on the historical cost of the firm's assets, but on investors' expectation of the firm's future performance. There are many events that may affect Global's future profitability, and hence its share price, that do not show up on the balance sheet.
The market value of a stock depends on both the historical cost of the firm's assets and investors' expectation of the firm's future performance. There are many events that may affect Global's future profitability, and hence its share price, that do not show up on the balance sheet.
A and D
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