Reference no: EM13495279

PROBLEM 1

Assume that XYZ Company has no opening inventory. The following purchases of inventory occurred during the year:

 

                Date            Purchases (units)       Purchase price per unit

            Jan. 2                        2                                    $3

            Feb. 15                      3                                    $4

            March 30                   4                                    $5

            July 29                      6                                    $6

            Oct. 30                     5                                    $7

 

Assume XYZ Company sells 8 items on October 31 and uses the FIFO method of inventory valuation. What amount would appear as cost of goods sold on the income statement?

               a. $33

            b. $53

            c. $76

            d. $56

            e. None of the above. The correct calculation is shown below

 

PROBLEM 2

Paul is a day trader. He is interested in the common stock of XYZ Limited. The following data are available for the company:

	2012	2013	2014
Dividends paid per share*	$4	$3	$2.50
Dividend yield ratio	5.5%	5.5%	5.5%
Dividend payout ratio	40%	40%	40%
Return on total assets	10%	12%	8%
Return on common stockholders' equity	8%	14.5%	9%

 

*There were no changes in common stock outstanding over the three-year period.

Paul would like answers to the following questions:

1.    Is the market price of the company's stock going up or down?

2.    Is the company employing financial leverage to the advantage of the common stockholders?