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FINANCIAL MANAGEMENT EXAM CH.1-5 QUESTIONS AND ANSWERS
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FINANCIAL MANAGEMENT EXAM CH.1-5 QUESTIONS AND ANSWERS
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FINANCIAL MANAGEMENT EXAMCH.1-5 QUESTIONS AND ANSWERS
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loPreparation,lohaslobeenloverylosuccessful,loaslothelopairloagreeloonlomostlobusiness-
relatedloquestions.loOne
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lodisagrees;lohelothinkslothatlothelobusinessloshouldloremainloalopartnershiploforever.lo
loFirst,lotake
loAnn'sloside,loandloexplainlothelopositivelosidelotoloincorporatinglothelobusiness.lo
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forloAnnloandloJack?
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oloalocorporation?lo-loanswer---Lessloexpensivelotoloorganize.
-Lowerloincomelotaxes.
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oandloJack?lo-loanswer---Marital
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ompetinglo15-yearloprojectslothatlodifferloinloseveralloways.loRelativelotoloyour
lofirm'slocurrentloEPS,lothelofirstloprojectloisloexpectedlotologenerateloabove-
, averageloEPSloduringlothelofirstlo5loyears,loaverageloEPSloduringlothelosecondlo5
loyears,andlothenlobelow-
averageloEPSloinlothelolastlo5loyears.loThelosecondloprojectloisloexpectedlotologenerate
lobelow-averageloEPSloduringlothelofirstlo5loyears,loaverageloEPSloinlothelosecondlo5
loyears,loandlothenlowell-above-average loEPSloinlothelolastlo5loyears.
Islothelochoiceloobviousloifloyouloexpectlothatlothelosecondloinvestmentlowillloresultloinloalolarg
erlooverallloearningsloincrease?lo-loanswer--No.loThelofirmlocanloearnloaloreturnloonlofundsloit
loreceives,lothereforelotheloreceiptlooflofundsloislopreferredlosoonerloratherlothanlolater.loThelo
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averageloreturnsloinlothelosameloperiod.
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lodecision?lo/loIssuesloyouloshouldloconsiderlobeforelomakingloalofinallodecisionloare:lo-
loanswer---timing,locashloflows,loandlorisk
Taxloliabilityloforlofirstloyearlo(exampleloonlocardlo7lobelow)lo-loanswer--
Findlo(Taxableloincomelo=lopretaxloordinaryloincomelo+locapitallogains)
andlothenlouselothatloanswerlotolofindlothelotaxloliabilitylofromlothelo'Corplotaxlorateloschedule'lo
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ssetlopurchasedlotwoloyearsloagolowithloalorealizedlocapitallogainlooflo
$25,000.loUsinglothislotable,localculatelothelotaxloliabilityloforlothelocompanylothisloyear.lo-
loanswer--1.taxloincomelo=lo500klo+lo25klo=lo525k
2.loUsinglotable:lo525klo=lo$178,500lotaxloliability
MeridethloHarperlohasloinvested
lo$25,000loinloSouthwestloDevelopmentloCompany.loThelofirmlohaslorecentlylodeclaredloba
nkruptcyloandlohaslo$60,000loinlounpaidlodebts.loExplainlothelonaturelooflopayments,loif
loany,lobyloMeridethloinloeachlooflothelofollowinglosituations.
a.loSouthwestloDevelopmentloCompanyloisloalosoleloproprietorshiploownedlobyloMs.loHarpe
r.
b.loSouthwestloDevelopmentloCompanyloisloalo50-
50lopartnershiploofloMeridethloHarperloandloChristopherloBlack.
c.loSouthwestloDevelopmentloCompanyloisloalocorporation.lo-loanswer--
a.loMs.loHarperlohaslounlimited
loliability,lowhichlomeanslocreditorslocanloclaimloagainstloherlopersonalloassets.
b.loMs.loHarperlohaslounlimited
loliability,lowhichlomeanslocreditorslocanloclaimloagainstloherlopersonalloassets.
c.loMs.loHarperlohaslolimited
loliability,lowhichloguaranteeslothatloshelocannotloloselomorelothanlothe
lo$25,000losheloinvested.
ItloislotypicalloforloJaneloto
loplan,lomonitor,loandloassessloherlofinanciallopositionlousinglocashloflowslooverloalogiven
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