10 Finance Question (Benkart’s Tire Store has fixed costs of $220,000)

1. Assume that the tax on dividends and the tax on capital gains is the same. All else equal, what would a prudent investor prefer? (Points : 1)

a.      

The prudent investor would be indifferent between receiving dividends or capital gains.

b.     

The prudent investor would prefer dividendsa dollar today is always worth more than a dollar to be received in the future.

c.      

The prudent investor would prefer capital gainsthe capital gain tax liability can be deferred until gains are realized.

d.     

More information is needed.

 

2. Benkart’s Tire Store has fixed costs of $220,000. Tires sell for $95 each and have a unit variable cost of $45. What is Benkart’s break-even point in units? (Points : 1)

a.       4,000

b.      4,400

c.       5,200

d.      5,500

 

3. A high degree of variability in a firm’s earnings before interest and taxes refers to (Points : 1)

a.       business risk.

b.      financial risk.

c.       financial leverage.

d.      operating leverage.

 

4. Which of the following is the most valid reason to split a stock that has a market price of $110 per share? (Points : 1)

a.       Conserve cash.

b.      Reduce the market price to a more popular trading range.

c.       Obtain additional capital.

d.      Increase investor’s net worth.

 

5. Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories? (Points : 1)

a.       the clientele effect

b.      the residual dividend theory

c.       the information effect

d.      the expectations theory

 

6. Based on the data contained in Table A, what is the break-even point in sales dollars?

 

TABLE A

Average selling price per unit $18.00

Variable cost per unit $13.00

Units sold 400,000

Fixed costs $650,000

Interest expense $ 50,000 (Points : 1)

a.       $2,340,000

b.      $1,850,000

c.       $1,775,500

d.      $700,000

   

7. Amish Enterprises makes wooden play sets. The company pays annual rent of $400,000 per year and pays administrative salaries totaling $150,000 per year. Each play set requires $400 of wood, ten hours of labor at $70 per hour, and variable overhead costs of $100. Fixed advertising expenses equal $100,000 per year. Each play set sells for $3,200. What is Amish Enterprises’ break-even output level? (Points : 1)

a.       340 play sets

b.      325 play sets

c.       297 play sets

d.      258 play sets

 

8. The break-even point is equal to (Points : 1)

a.       fixed costs divided by (sales price per unit — variable cost per unit).

b.      fixed costs divided by unit variable costs.

c.       fixed costs divided by selling price per unit.

d.      (sales price per unit — variable cost per unit) times the fixed costs.

 

9. The break-even model enables the manager of the firm to (Points : 1)

a.       calculate the minimum price of common stock for certain situations.

b.      set appropriate equilibrium thresholds.

c.       determine the quantity of output that must be sold to cover all operating costs.

d.      determine the optimal amount of debt financing to use.

 

10. The final approval of a dividend payment comes from (Points : 1)

a.       the controller.

b.      the president of the company.

c.       the board of directors.

d.      It is a joint decision requiring approval from all of the above.