Preferred stock, $20 par, 10%
Common stock, $10 par
Additional paid-in capital–common stock
Retained earnings
Total stockholders’ equity
Total liabilities & stockholders’ equity
$100
60
90
250
480
730
120
180
240
840
1,380
$2,110
$130
60
120
310
500
810
120
180
240
660
1,200
$2,010
Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)
Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income $2,760
1,930
830
330
500
50
450
135
$315
Dividends during Year 2 totaled $135 thousand, of which $12thousand were preferred dividends. The market price of a share ofcommon stock on December 31, Year 2 was $150.
Larkins Company’s book value per share at the end of Year 2 wasclosest to:
a)76.67
b)70.00
c)10.00
d)23.33
2. An increase in the market price of a company’s common stock willimmediately affect its
a)dividend payout ratio
b)dividend yield ratio
c)earnings per share common stock
d) debt to equity ratio
3. Kava Inc. manufactures industrial components. One of itsproducts, which is used in the construction of industrial airconditioners, is known as K65. Data concerning this product aregiven below:
Per Unit
Selling price $180
Direct materials $29
Direct labor $5
Variable manufacturing overhead $4
Fixed manufacturing overhead $21
Variable selling expense $2
Fixed selling and administrative expense $17
The above per unit data are based on annual production of 4,000units of the component. Direct labor can be considered to be avariable cost. (Source: CMA, adapted)
The company has received a special, one-time-only order for 500units of component K65. There would be no variable selling expenseon this special order, and the total fixed manufacturing overheadand fixed selling and administrative expenses of the companywouldn’t be affected by the order. Assuming that Kava has excesscapacity and can fill the order without cutting back on theproduction of any product, what is the minimum price per unit onthe special order below which the company shouldn’t go?
a)78
b)59
c)180
d)38
4.
A company’s current ratio and acid-test ratios are both greaterthan 1. If obsolete inventory is written off, this would
a) decrease the acid-test ratio
b) increase the acid-test ratio.
c) increase net working capital
decrease the current ratio.
5. Fonics Corporation is considering the following three competinginvestment proposals:
Aye Bee Cee
Initial investment required $62,000 $74,000 $95,000
Net present value $10,000 $8,000 $12,000
Internal rate of return 15% 17% 18%
Using the project profitability index, how would the aboveinvestments be ranked (highest to lowest)?
a) Bee, Cee, Aye
b) Aye, Cee, Bee
c) Cee, Bee, Aye
d) Aye, Bee, Cee
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