FI3300: CORPORATE FINANCEProblem Set 2 Chapters 1-51. What are the two things corporations can do with net income?a. buy bonds and stocks is the most commonb. pay dividends or reinvest it in the companyc. issue new stock in that amount and buy new computersd. improve the company’s facilities and pay billse. buy stock in another company and sell bonds2. Which of the following items would have NO effect on the current ratio?a. increasing the average collection periodb. paying down long-term debt with cashc. the sale of inventory to pay off accounts payabled. issuing new stock and placing the proceeds in the cash accounte. purchase of inventory with cash3. Why is profit maximization not the goal of financial management?a. profit maximization is the goal of financial managementb. since profits are after taxes, management needs to lower profitsc. seeking profit alone doesn’t consider risk in obtaining profitsd. profits are based on historical costs not market valuese. financial managers are supposed to increase dividends4. Which of the following is INCORRECT?a. an increase in an asset account is a use of funds b. an increase in total stockholders equity is a use of fundsc. a decrease in liabilities is a use of fundsd. an increase in total stockholders equity is a source of fundse. An increase in Accounts Payable is a source of funds. 5. Which of the following are the financing decision variables used when determining Outside Funds Needed (OFN)?a. common stock, notes payable, long term debtb. accounts receivable, cash, inventoryc. land, owner’s equity and accrued taxesd. accounts payable, accrued wages, and accrued expensese. sales, ending inventory, wages payable, interest expenseUse the following to prepare a multi-step income statement for Paws, Inc. and answer 6 – 10.Repairs and maintenance costs 3,000Ending inventory 90,000Advertising expenditures 9,000Depreciation expense 25,000Beginning inventory100,000Interest expense 30,000Taxes 19,950Gross sales600,000Management salaries 40,000Returns and allowances 30,000Materials purchases210,000Lease payments 50,000R&D expenditures 8,000Accumulated depreciation(prior year)300,8206. Paws’ COGS is $________.a. 295,000b. 250,000c. 220,000d. 280,0007. Paws’ gross profit is $_________.a. 215,000,000b. 220,000c. 570,000d. 350,0008. Paw’s operating profit is $_______.a. 215,000b. 240,000c. 250,000d. 220,0009. Panther’s net profit margin is ______%.a. 61.40b. 28.96c. 32.46d. 37.7210. Panther’s accumulated depreciation for this year is $________.a. 25,000b. 300,820c. 275,820d. 325,820Use the following to prepare a balance sheet for the Panther Company and answer 11-15.Common Stock (Par US$1.5) 300,000Accounts payable 140,000 Net Account receivables (2-3) 200,000 Retained Earnings 300,000 Current portion of Long-term debt 10,000 Accumulated depreciation 150,000 Cash ???????Notes Payable 50,000 Long Term Debt (excluding current portion) 300,000 Additional paid-in capital 150,000 Gross Fixed Assets 400,000 Inventories 700,000 Accrued expenses 20,000 Net Income 154,000Retained Earnings (Prior year) 200,000Depreciation (Current Year) 100,000Net fixed assets (prior year) 300,00011. Panther’s cash balance is $_______.a. 120,000b. 12,000c. 100,000d. 90,00012. Panther’s net fixed assets are $_______.a. 220,000b. 230,000c. 250,000d. 260,00013. Panther’s dividend per share is $______.a. 0.18b. 0.37c. 0.27d. 0.1014. Panther’s Earnings per share are $______.a. 0.51b. 0.61c. 0.77d. 1.0015. Panther’s spent $______ on fixed assets in the current year.a. 55,000b. 100,000c. 65,000d. 50,00016. Steeler’s total liabilities are $_________.a. 220,000b. 300,000c. 520,000d. 750,000Use the following information of Big Kahuna Burger Inc. to answer questions 17-20.BALANCE SHEET Big Kahuna Burger Inc. For the 12-month Period ending December, 31 2007 2008Cash 156.000 36.750 Net Account receivables 95.000 108.000 Inventories 100.000 106.250 Current Assets 351.000 251.000 Net Fixed assets 1.050.000 1.144.000 Long Term Investments in stocks of other companies100.000 100.000 Total Assets 1.501.000 1.495.000 Short term Bank loans (Notes Payable) 12.000 13.000 Accounts payable 37.000 39.000 Accrued expenses 7.000 9.000 Current portion of Long-term debt 50.000 49.000 Total Current Liabilities 106.000 110.000 Long Term Debt (excluding current portion) 750.000 700.000 Common Stock (Par US$1.5) 300.000 310.000 Additional paid-in capital 65.000 75.000 Retained Earnings 280.000 300.000 Total Liabilites and Equity 1.501.000 1.495.000INCOME STATEMENT Big Kahuna Burger Inc. For the 12-month Period ending December 2007 2008Net Sales 260.000 226.000 COGS100.000 25.000 Gross Profit160.000 201.000 Operating Expenses (Excluding depreciation)59.000 54.000 Depreciation25.000 31.000 Operating Profit or EBIT76.000 116.000 Interest Expense20.000 25.000 Profit before taxes (EBT)56.000 91.000 Taxes (35%)19.600 31.850 Net Income36.400 59.150 Accumulated depreciation in 2008 was 231,00017. Cash flow from operations is $_____.a. 43,900b. 74,900c. 75,900d. 80,90018. Cash flow from investing is $______.a. -94,000b. 94,000c. -125,000d. 125,00019. Cash flow from financing is $______.a. -30,000b. 30,000c. -69,150d. 69,15020. Total change in cash flow is $_______.a. 119,250b. -119,250c. 22,750d. -22,750For questions 21-22 use the information in the Balance Sheets and the Income Statementsof Big Kahuna Burger, Inc. Also, suppose that the Net Profit Margin in 2009 will remainthe same as in 2008, Net Sales will increase 20% and the dividends that will be paid areprojected to be 45% of Net Income in 2009. 21. Retained earnings are $____.a. 280,000b. 300,000c. 335,490d. 370,98022. Total outside funds needed will be $_____.a. 253,910b. 289,400c. 299,000d. 353,910For questions 23-25 use the following information:Balance SheetCash Notes Payable 50Inventory Accrued Expenses Net Fixed Assets 300 Long Term Debt 200Total Assets Common Stock (US$1) Retained Earnings 100Total Debt and Equity 600Equity Ratio = 0.5, Current Ratio=3, Quick Ratio =123. Accrued Expenses are $______.a. 25b. 50c. 100d. 15024. Common Stock is $______.e. 100f. 150g. 200h. 25025. Inventory is $_____.a. 100b. 150c. 200d. 25026. Assume you are given the following relationships for the Tim’s Inc.:Return on assets (ROA) 12%Return on equity (ROE) 30%Tim’s debt ratio is:a. 40%b. 60%c. 4%d. 6%27. Jameston Inc. has just issued 100,000 new shares of