Under inflationary conditions and stable inventories, the COGS under Average Cost method:
Answer(s): C
When prices are rising, the Average cost during the period is higher than the FIFO costs. Therefore, COGS under Average Cost method will be higher than the FIFO COGS (but lower than the LIFO COGS).
Why do the corporation's directors declare stock dividends?
Answer(s): A
Declaring a stock dividend will increase the number of shares outstanding and thereby keep the per share price low enough to be an attractive investment. Stock dividends may also show the company management's confidence in the present and future performance of the company.
A firm has convertible bonds, preferred equity, common equity and straight bonds in its capital structure. Its net income equals 7,800. The interest payments on straight debt equal 423 and that on convertible debt equals 680. The preferred equity holders received 220 in dividends. If the weighted number of shares for Diluted EPS equals 1,300 and the firm is in the 40% tax bracket, the Diluted EPS equals _________. Assume the convertibles are dilutive.
Answer(s): B
The earnings available for distribution amongst common stock holders and convertible bond holders equals Net income - preferred dividends + interest payments on convertible net of taxes. Therefore, earnings in the numerator = 7,800 - 220 +680*(1-40%) = 7,988. The Diluted EPS then equals 7,988/1,300 = 6.14.
Which of the following is usually not a feature of cumulative preferred stock?
Answer(s): E
Preferred stock does not usually have voting rights. Preferred shareholders are usually given the right to vote for directors only if the company has not paid the preferred dividend for a specified period of time, such as 10 quarters.
A firm's ROE equals 47%. Its financial leverage equals 1.8 and its asset turnover is 0.8. If the firm's total net sales equal $1.35 million, its net income equals ________.
ROE = net income/equity = (net income/sales)*(sales/assets)*(assets/equity) = (net income/sales)*(asset turnover)*(financial leverage) Therefore, net income = 0.47*1.35/(0.8*1.8) million = 440,625.
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