Q&A Hero

Q: A firm has sales of $685,000 and cost of goods sold of $435,000. The firm expects sales to increase by 6 percent next year. What is the gross profit amount expected to be next year if the firm uses the percentage of sales approach when compiling pro forma statements? A. $235,100 B. $265,000 C. $335,000 D. $355,100 E. $536,100

Q: The Erie Bay Liner Company has sales of $2.6 million and operating expenses of $175,000. The firm uses the percentage of sales approach and estimates next year's sales at $2.8 million. What are the operating expenses expected to be next year? A. $171,231 B. $175,123 C. $179,400 D. $182,549 E. $188,462

Q: A company has the following account balances. How much cash does the firm have assuming there are no other accounts?A. $27,300B. $27,900C. $30,900D. $47,300E. $50,300

Q: A firm has total equity of $61,600 and total liabilities of $18,900. Current assets are $44,700 and current liabilities are $15,200. What is the value of the net fixed assets? A. $8,300 B. $10,600 C. $29,500 D. $35,800 E. $42,700

Q: A company has net income of $65,430, a price-earnings ratio of 22.6, and 25,800 shares of stock outstanding. If the price-cash flow ratio is 20.4, what is the cash flow per share? A. $2.05 B. $2.34 C. $2.50 D. $2.81 E. $3.14

Q: A firm has earnings per share of $3.50 and cash flow per share of $3.84. The price-earnings ratio is 24.1. What is the price-cash flow ratio? A. 19.8 B. 20.1 C. 22.0 D. 26.0 E. 27.1

Q: Bay Marina, Inc. has net income of $53,700 and has 30,000 shares of stock outstanding. Similar firms have a price-earnings ratio of 20. Given this, what should the market price of Bay Marina, Inc. stock be per share? A. $28.91 B. $29.29 C. $30.40 D. $33.91 E. $35.80

Q: Children's Books, Inc. has net income of $48,000 and a plowback ratio of 85 percent. There are 25,000 shares of stock outstanding at a market price of $18.64 a share. What is the price-earnings ratio? A. 6.9 B. 7.1 C. 9.7 D. 11.1 E. 11.6

Q: A firm has net income of $22,500 and a book value per share of $3.10. The firm has 30,000 shares of stock outstanding and a price-earnings ratio of 15.9. What is the price-book ratio? A. 1.7 B. 2.4 C. 2.7 D. 3.8 E. 4.3

Q: Green Recycling, Inc. has 150,000 shares of stock outstanding. The firm has total assets of $568,000 and total liabilities of $415,000. The firm's stock is selling for $31 a share. What is the price-book ratio? A. 22.3 B. 26.5 C. 27.5 D. 30.4 E. 37.8

Q: A company has a price-earnings ratio of 23 and a price-cash flow ratio of 11.5. If the earnings per share are $1.75, what is the cash flow per share? A. $2.16 B. $2.51 C. $3.06 D. $3.14 E. $3.50

Q: A firm has a price-cash flow ratio of 12.5 and a price-book value ratio of 7.6. If the cash flow per share is $4.67, what is the book value per share? A. $2.84 B. $3.55 C. $4.44 D. $6.45 E. $7.68

Q: Wholesale Grocer's has total assets of $580,000 and total liabilities of $375,000. Net sales for the year are $523,000 and the profit margin is 10.5 percent. What is the return on equity? A. 10.6 percent B. 26.8 percent C. 31.2 percent D. 37.4 percent E. 44.6 percent

Q: Smith's Corner Market had annual sales of $425,300 and total assets of $366,000. What is the return on assets if the profit margin is 11 percent? A. 8.2 percent B. 9.8 percent C. 10.6 percent D. 11.0 percent E. 12.8 percent

Q: A firm has net sales of $65,000, operating expenses of $21,300, depreciation of $5,000, cost of goods sold of $36,500, and interest expense of $4,500. What is the operating margin? A. -2.8 percent B. 2.6 percent C. 3.4 percent D. 9.2 percent E. 10.3 percent

Q: A firm has net sales of $35,000, operating expenses of $6,100, depreciation of $1,700, and cost of goods sold of $18,300. What is the gross margin? A. 31.1 percent B. 35.4 percent C. 47.7 percent D. 52.9 percent E. 59.2 percent

Q: Marley Enterprises has financing cash flow of -$41,400 and investment cash flow of $28,600 for the year. The beginning cash balance was $65,300 and the ending cash balance was $44,800. What was the operating cash flow for the period? A. -$15,500 B. -$9,600 C. -$7,700 D. $8,900 E. $15,500

Q: Whole Wheat Farms, Inc. has a net income of $20,000 and a dividend payout ratio of 30 percent. The firm issued $12,000 worth of common stock during the period. The firm has no long-term debt. What is the financing cash flow for the period? A. $2,500 B. $3,000 C. $6,000 D. $9,000 E. $25,000

Q: Healthy Supplements, Inc. paid $7,300 in interest and $4,300 in dividends for the year. The firm also issued $15,000 worth of new equity securities. What is the amount of the financing cash flow? A. $2,500 B. $5,200 C. $6,800 D. $7,700 E. $10,700

Q: For the year, Widgets Manufacturing, Inc. increased its current accounts by $52,000, decreased its current liabilities by $38,000, and decreased its fixed assets by $31,000. What is the investment cash flow for the year? A. -$31,000 B. -$12,000 C. $19,000 D. $31,000 E. $48,000

Q: Glassmakers, Inc. purchased $137,600 of new equipment this year and also increased the inventory by $36,800. Thirty-three thousand dollars worth of old equipment was sold. What is the investment cash flow for the year? A. -$49,300 B. -$98,000 C. -$104,600 D. -$125,500 E. -$133,300

Q: O'Hara's Market has net income of $1.6 million and 525,000 shares of stock outstanding. What is the amount of the dividends per share if the plowback ratio is 60 percent? A. $0.94 B. $1.07 C. $1.22 D. $1.67 E. $1.98

Q: HNW Manufacturing, Inc. has 255,000 shares of stock outstanding. The firm paid out $255,000 in dividends, $195,000 in interest, and added $193,700 to retained earnings for the year. What is the amount of the earnings per share? A. $0.70 B. $0.78 C. $1.47 D. $1.63 E. $1.76

Q: Handy Man Services, Inc. has net income of $525,000. What is the addition to retained earnings if the dividend payout ratio is 40 percent? A. $123,253 B. $157,250 C. $183,750 D. $221,813 E. $315,000

Q: The Cruise Ship Co. has taxable income of $4,000,000. The company paid out $550,000 in interest expense. The tax rate is 35 percent and the dividend payout ratio is 30 percent. What is the amount that was paid out in dividends? A. $420,000 B. $550,000 C. $682,500 D. $780,000 E. $980,000

Q: Gold Jewelry, Inc. has annual sales of $4.5 million and a gross profit margin of 55 percent. The operating expenses are $540,750 and depreciation is $170,300. Interest expense is $95,000 and the tax rate is 35 percent. What is the net income? A. $1,002,980 B. $1,084,818 C. $1,356,220 D. $1,589,200 E. $2,385,000

Q: Behrend Corporation has annual sales of $4.5 million, depreciation of $425,000, operating expenses of $679,000, cost of goods sold of $2.3 million, and interest expense of $230,000. What is the operating income? A. $1,096,000 B. $2,036,000 C. $3,525,000 D. $4,000,000 E. $4,811,000

Q: GH Enterprises has annual sales of $5.2 million, depreciation of $350,000, operating expenses of $390,000, and cost of goods sold of $3.1 million. What is the gross profit? A. $460,000 B. $850,000 C. $2,100,000 D. $2,650,000 E. $3,710,000

Q: ABC Construction, Inc. has buildings and equipment of $315,600, long-term debt of $154,700, accounts payable of $52,000, cash of $9,800, accounts receivable of $18,300, inventory of $62,000, and retained earnings of $147,000. What is the total equity of the firm? A. $5,200 B. $97,000 C. $147,000 D. $199,000 E. $228,000

Q: Young Industries has a 3-year bank loan of $85,000, a 6-month note payable of $6,000, a $67,300 mortgage, and accounts payable of $22,500. What is the amount of the total current liabilities? (Ignore the current portion of any long-term debt.) A. $5,000 B. $16,200 C. $28,500 D. $64,200 E. $117,000

Q: A firm has $4,200 of cash, equipment worth $46,300, inventory of $38,400, a building worth $130,500, and $21,500 of accounts receivable. What is the value of the total fixed assets? A. $176,800 B. $203,500 C. $196,400 D. $223,100 E. $226,900

Q: A firm has $2,500 of cash, equipment worth $45,000, inventory of $16,300, $14,000 worth of patents, and $12,200 of accounts receivable. What is the value of the total current assets? A. $1,500 B. $14,700 C. $16,700 D. $31,000 E. $72,900

Q: The management of the Uptown Bikes recently voted to limit any future borrowing or sales of company stock. By taking this action, management has effectively done which one of the following? A. increased the profit margin B. lowered income taxes C. maximized future dividends D. maximized future retained earnings E. limited future growth

Q: Which two of the following are generally used to fund the external financing need? I. sale of fixed assets II. increase in accounts payable III. issuance of long-term debt IV. sale of equity securities A. I and II B. I and III C. II and III D. II and IV E. III and IV

Q: Which one of the following is most apt to vary directly with sales? A. current assets B. long-term debt C. shareholders' equity D. paid-in capital E. retained earnings

Q: A firm maintains a constant dividend payout ratio of .40. What must the plowback ratio be? A. 1 + .40 B. 1 - .40 C. 1 .40 D. 1/.40 E. .40

Q: Which one of the following is most apt to be constant given the percentage of sales approach to creating pro forma statements? A. book value per share B. gross margin C. earnings per share D. return on equity E. cash flow per share

Q: Which one of the following accounts is least likely to vary directly with the level of sales? A. accounts payable B. inventory C. cost of goods sold D. interest expense E. accounts receivable

Q: Which one of the following statements related to book value per share (BVPS) is correct? A. BVPS is equal to total assets divided by the number of shares outstanding. B. An increase in the market value of a firm's fixed assets will increase the firm's BVPS. C. The payment of a dividend increases BVPS. D. BVPS is equal to the market price of a share of stock. E. The issuance of new shares at market value may increase the BVPS.

Q: Which of the following affect the earnings per share? I. decrease in interest expense II. share repurchase III. increase in tax rates IV. preferred stock dividend A. I and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Q: Which one of the following will increase the return on equity? A. increase in the corporate tax rate B. decrease in fixed costs C. issuance of debt to purchase equipment D. increase in variable costs per unit E. decrease in net sales

Q: A decrease in which one of the following will increase the return on assets? A. long-term debt B. sales C. inventory D. retained earnings E. dividends paid

Q: Which one of the following is generally used as the basis for computing the cash flow per share? A. operating cash flow B. investment cash flow C. financing cash flow D. net cash increase E. retained cash earnings

Q: A decrease in which one of the following will increase the gross margin? A. taxes B. sales C. depreciation D. variable costs E. fixed costs

Q: The summation of the operating, investment, and financing cash flows for a stated period of time must equal which one of the following for the same time period? A. net income B. total assets C. ending cash balance D. change in the cash balance E. taxable income

Q: Which one of the following is NOT a financing cash flow according to standard accounting practice? A. new issue of stock B. repurchase of stock C. new issue of debt D. interest payments E. dividend payments

Q: Which one of the following will increase the investment cash flow? A. purchase of an investment B. issuing new shares of stock C. repaying a bond issue D. sale of a building E. payment of interest on a bond issue

Q: Which one of the following is the primary difference between operating cash flow and net income? A. interest expense B. indirect costs C. taxes D. fixed costs E. depreciation

Q: Which one of the following statements is correct? A. Pretax income is equal to gross profit minus interest expense. B. Gross profit is equal to sales minus costs of goods sold and depreciation. C. Operating expenses are indirect costs. D. Costs that vary directly with production are classified as operating expenses. E. The change in retained earnings is equal to net income plus dividends paid.

Q: Net income is equal to which one of the following? A. operating income plus interest expense minus taxes B. gross profit minus depreciation and interest expense C. pretax income plus income taxes D. dividends plus the change in retained earnings E. pretax income minus taxes and dividends

Q: Draw a graph with the option price on the vertical axis and the time to expiration on the horizontal axis. Illustrate how put and call option prices vary as the time to expiration increases.

Q: Identify the five factors of the Black-Scholes option pricing model and identify whether each factor must increase or decrease to cause the price of a put option to increase.

Q: Create a stock price tree for three periods for a stock that is currently valued at $10 a share. The up amount per period is 1.15 and the down amount per period is .90. Show all dollar amounts to 3 decimal places.

Q: Mike was granted stock options on 1,000 shares of his employer's stock. The stock is currently selling for $27.70 a share and has a standard deviation of 36 percent. The option's strike price is $27.50 and the time to maturity is 10 years. What is the value of each option given a risk-free rate of 3 percent? Assume that no dividends are paid.A. $14.35B. $15.67C. $17.80D. $20.15E. $22.70

Q: You have been granted stock options on 300 shares of your employer's stock. The stock is currently selling for $37.80 and has a standard deviation of 30 percent. The option's strike price is $35 and the time to maturity is 10 years. What is the value of each option given a risk-free rate of 3.0 percent? Assume that no dividends are paid. A. $12.95 B. $14.47 C. $16.68 D. $18.39 E. $20.01

Q: Laura has an equity portfolio valued at $11.2 million that has a beta of 1.32. She has decided to hedge this portfolio using SPX call option contracts. The S&P 500 index is currently 1402. The option delta is .582. How many option contracts must Laura write to effectively hedge her portfolio?A. 37 contractsB. 42 contractsC. 175 contractsD. 181 contractsE. 191 contracts

Q: You have an equity portfolio valued at $1.55 million that has a beta of 1.21. You have decided to hedge this portfolio using SPX call option contracts. The S&P 500 index is currently 1457. The option delta is .6435. How many option contracts must you write to effectively hedge your portfolio?A. 14 contractsB. 18 contractsC. 20 contractsD. 25 contractsE. 28 contracts

Q: You own 1,800 shares of Textile stock which is currently valued at $62 a share. The $65 put has a premium of $4.26 and a put delta of -.60. What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?A. buy 3 contractsB. buy 30 contractsC. buy 300 contractsD. write 3 contractsE. write 30 contracts

Q: You own 7,500 shares of GO stock which is currently valued at $47 a share. The $50 put has a premium of $2.50 and a put delta of -.60. What position should you take in $50 put contracts to hedge your stock against a $1 decrease in price?A. buy 125 contractsB. buy 1,250 contractsC. buy 12,500 contractsD. write 125 contractsE. write 1,250 contracts

Q: You own 4,800 shares of a stock that is currently priced at $34 a share. Given this price, the option delta for a $30 call option on this stock is .955. How many $30 call option contracts do you need to hedge against a -$1 change in the price of the stock?A. buy 50 option contractsB. buy 503 option contractsC. write 50 option contractsD. write 503 option contractsE. write 5,026 option contracts

Q: You own 1,500 shares of ABC stock that is currently priced at $27 a share. Given this price, the option delta for a $25 call option on this stock is .724. How many $25 call options do you need to hedge against a -$1 change in the price of the stock?A. buy 1,500 optionsB. buy 2,482 optionsC. write 1,500 optionsD. write 2,072 optionsE. write 3,295 options

Q: You own 1,200 shares of Banner Co. stock that is currently priced at $42 a share. Given this price, the option delta for a $40 call option on this stock is .664. How many $40 call options do you need to hedge against a -$1 change in the price of the stock?A. buy 1,613 optionsB. buy 1,713 optionsC. buy 1,8.7 optionsD. write 1,713 optionsE. write 1,807 options

Q: You have determined that you need -1,589 call options to hedge your stock portfolio. What should you do based on this information? A. buy 16 call option contracts B. buy 1,589 call option contracts C. write 16 call option contracts D. write 160 call option contracts E. write 1,589 call option contracts

Q: A stock is currently priced at $44 a share while the $45 call option is priced at $1.22. The call option delta is .86. What is the approximate call price if the stock increases in value to $45? A. $0.12 B. $0.26 C. $0.96 D. $1.98 E. $2.08

Q: A stock is currently priced at $22 a share while the $30 put option is priced at $5.22. The put option delta is -.25. What is the approximate put price if the stock increases in value to $25? A. $3.76 B. $4.97 C. $5.08 D. $5.27 E. $5.50

Q: Given a set of variables, the Black-Scholes option pricing formula has a put option delta of -.154. What is the call delta given these same variables? A. -1.154 B. -.846 C. .846 D. 1.154 E. The answer cannot be determined based on the information provided.

Q: Given a set of variables, the Black-Scholes option pricing formula has a call option delta of .496. What is the put delta given these same variables? A. -1.496 B. -.504 C. .504 D. 1.496 E. The answer cannot be determined based on the information provided.

Q: What is the put option premium given the following information?A. $0.20B. $0.54C. $0.82D. $1.01E. $1.12

Q: What is the put option premium given the following information? A. $7.49 B. $7.98 C. $8.28 D. $8.76 E. $9.64

Q: What is the put option premium given the following information? A. $3.62 B. $4.23 C. $4.47 D. $4.89 E. $5.01

Q: What is the put option premium given the following information? A. $1.58 B. $2.01 C. $2.59 D. $3.63 E. $4.15

Q: What is the call option premium given the following information?A. $7.16B. $7.78C. $8.58D. $9.03E. $9.49

Q: What is the call option premium given the following information? A. $5.91 B. $6.28 C. $6.75 D. $6.90 E. $7.13

Q: What is the call option premium given the following information?A. $1.86B. $2.20C. $2.36D. $2.98E. $3.30

Q: What is the call option premium given the following information?A. $4.63B. $5.28C. $6.39D. $7.60E. $8.66

Q: A stock with a current price of $18 will either move up by a factor of 1.2 or down by a factor of .9 each period over the next two periods. The risk-free rate of interest is 4.5 percent. What is the current value of a call option with a strike price of $20?A. $1.02B. $1.08C. $1.17D. $1.21E. $1.27

Q: A stock with a current price of $28 will either move up by a factor of 1.10 or down by a factor of .90 each period over the next two periods. The risk-free rate of interest is 4 percent. What is the current value of a call option with a strike price of $30?A. $1.36B. $1.49C. $1.71D. $2.09E. $2.13

Q: A stock with a current price of $25 will either move up to $32 or down to $20 over the next period. The risk-free rate of interest is 3.5 percent. What is the value of a call option with a strike price of $30?A. $0.61B. $0.72C. $0.93D. $1.11E. $1.36

Q: A stock with a current price of $32 will either move up to $40.00 or down to $30 over the next period. The risk-free rate of interest is 3 percent. What is the value of a call option with a strike price of $35?A. $1.30B. $1.44C. $1.87D. $2.09E. $2.41

Q: A stock with a current price of $30 will either move up to $37 or down to $26 over the next period. The risk-free rate of interest is 2.5 percent. What is the value of a call option with a strike price of $35?A. $0.49B. $0.68C. $0.86D. $0.97E. $1.21