Fin 221 Fall 2006 Exam 2

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1) Marcus Nurseries Inc.'s 2005 balance sheet showed total common equity of $2,050,000, which included $1,750,000 of retained earnings. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. If the firm had net income of $250,000 in 2006 and paid out $100,000 as dividends, what would its book value per share be at the end of 2006, assuming that it neither issued nor retired any common stock?
A.|$19.00|
B.|$20.00|
C.|$21.00|
D.|$22.00|
E.|$23.00|

2) Lennox Furniture Company's 2005 balance sheet showed total current assets of $1,500,000. All of the current assets were required in operations, and its current liabilities consisted of $300,000 of accounts payable, $200,000 of 6% short-term notes payable to the bank, and $100,000 of accrued wages and taxes. What was the net operating working capital that was financed by investors at the end of 2005?
A.|$1,100,000|
B.|$1,200,000|
C.|$1,300,000|
D.|$1,400,000|
E.|$1,500,000|

3) Johnson Battery Systems Metals recently reported $9,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. The company had no amortization charges, it had $4,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate was 40%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $800 of capital expenditures on new fixed assets and to invest $500 in net operating working capital. What was its free cash flow?
A.|$1,000|
B.|$1,100|
C.|$1,200|
D.|$1,300|
E.|$1,400|

4) For 2005, Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including depreciation). The company has $20,500 of investor-supplied