# Fi 515

3153 Words13 Pages
1 | On its 1999 balance sheet, Sherman Books showed a balance of retained earnings equal to \$510 million. On its 2000 balance sheet, the balance of retained earnings was also equal to \$510 million. Which of the following statements is most correct? Show your calculations. | | | | | | | | | | | | | | a. The company must have had net income equal to zero in 2000. | | | | | | | | | | | | | | b. The company had a profit in 2000 but did not pay a dividend in 2000. | | | | | | | | | | | | | | c. the company’s net income in 2000 was \$200 million. | | | | | | | | | | | | | | d. If the company lost money in 2000, they must have paid a dividend. | | | | | | | | | | | | | |…show more content…
The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 6 percent; Exxon bonds yielding 9.5 percent; GM preferred stock with a dividend yield of 9 percent. West's corporate tax rate is 35 percent. What is the after-tax return on the best investment alternative? (Assume the company chooses on the basis of after-tax returns.) | | | | | | | | | | | | | | Given: Alchua County Bonds 6% | | | | | | | | | | | | | | Exxon Bonds - 9.5(1-.35%) = 6.175% | | | | | | | | | | | | | | 0.06175 | | | | | | | | | | | | | | 6.175 | | | | | | | | | | | | | | GM Pref = 9(1.-.35)% =5.85 | | | | | | | | | | | | | | 0.0585 | | | | | | | | | | | | | | 5.85 | | | | | | | | | | | | | | | | | | | | | | | | | | | 6 | (TCO D) After-tax returns | | | | | | | | | | | | | | The XYZ Corporation has \$1000,000 which it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Greenville County tax-free municipal bonds yielding 7 percent; AB corp. bonds yielding 11.5 percent; XZ corp. preferred stock with a dividend yield of 10