Reference no: EM132543845
1. Darion Corporation currently has 200,000 shares of common stock outstanding at a market price of $40 per share. Which of the following statements is TRUE?
a. If Darion has a 5-for-4 stock split, the share price should drop to $32.
b. If Darion distributes a 25% stock dividend, the number of shares outstanding will increase to 250,000.
c. If Darion has either a 5-for-4 stock split or a 25% stock dividend, the result on the share price and the number of shares outstanding will be identical.
d. All of the above.
e. None of the above.
2. Suppose you own one share of BMI common stock, priced at $20 per share right before the ex-dividend date. A dividend of $0.50/share had previously been declared, so you will receive $0.50 on the dividend payment date. Assuming you do not plan to sell BMI stock, what will happen to your total wealth from this investment on the morning of the ex-dividend date (measured in any form of asset, including cash, receivables, etc.)?
a. Your total wealth will fall by $0.50 from the previous day's wealth.
b. Your total wealth will fall by $20 to zero.
c. Your total wealth will still be $20 but will now consist of a share of stock worth $19.50 and a dividend receivable worth $0.50, to be received on the payment date.
d. Your total wealth will increase to $20.50, which equals the value of the stock plus the dividend.
e. None of the above.
3. Suppose that today you purchased a shipment of lumber from Canada that you will resell in your Walla Walla hardware store for $26,000 U.S. The cost of the lumber is fixed at $21,000 Canadian, which will be paid in Canadian dollars (CDN) to the supplier when the shipment arrives in 30 days. The spot rate today is $1.50 CDN = 1 USD (rightcolumn exchange rate). What would be your gross profit or loss on the sale of this lumber assuming: (1) the value of the CDN dollar (relative to the USD) did not change during the next 30 days; or (2) the exchange rate in 30 days was $1.65 CDN = 1 USD?
a. (1) $5,000 U.S. profit; (2) $2,900 U.S. profit.
b. (1) $12,000 U.S. profit; (2) $10,444 U.S. profit.
c. (1) $5,500 U.S. loss; (2) $2,350 U.S. loss.
d. (1) $12,000 U.S. profit; (2) $13,273 U.S. profit.
e. None of the above.
4. Suppose you offer customers a cash discount with terms 2/10, net 30. Which of the following statements is TRUE?
a. Your customers receive a 10% discount if they pay within 30 days of the invoice date.
b. If a customer owes $10,000 and pays within the discount period, $9,000 should be paid.
c. The effective annual rate of offering this discount is less than 3% APR, so you would be smart to offer the discount if you can reinvest early receipts at 4% APR or more.
d. The effective annual rate of offering this discount is very high (at least 24%), which means you are foolish to offer this costly discount.
e. None of the above is a true statement.
5. Which of the following is NOT a true statement regarding sales on credit?
a. Selling on credit to customers can usually benefit the seller by resulting in higher sales volume and prices.
b. Offering credit to customers has drawbacks, including uncollectible amounts, idle money tied-up in receivables, the cost of monitoring credit, and the cost of collections.
c. Typical actions taken for a severely delinquent account receivable include: preparing delinquency letters, making phone calls, sending the account to a collection agency, or initiating legal action.
d. Lengthening the credit time granted to customers will reduce the receivables period (i.e. time it takes to collect, also known as days sales in receivables).
e. Companies should strive to have a very low or even negative cash cycle.