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Which one of the following is a source of cash?
Granting credit to a customer
Purchase of inventory
Acquisition of debt
Payment to a supplier
Repurchase of common stock
Nadine’s Home Fashions has $2.12 million in net working capital. The
firm has fixed assets with a book value of $31.64 million and a market
value of $33.9 million. The firm has no long-term debt. The Home
Centre is buying Nadine’s for $37.5 million in cash. The acquisition will
be recorded using the purchase accounting method. What is the amount
of goodwill that The Home Centre will record on its balance sheet as a
result of this acquisition?
$5.86 million
$3.34 million
$4.14 million
$1.48 million
$3.74 million
Chelsea Fashions is expected to pay an annual dividend of $1.10 a share
next year. The market price of the stock is $21.80 and the growth rate is
4.5 percent. What is the firm’s cost of equity?
9.55 percent
10.54 percent
9.24 percent
7.91 percent
9.77 percent
Operating leverage is the degree of dependence a firm places on its:
Depreciation tax shield.
Variable costs.
Fixed costs.
Operating cash flows.
Sales.
Phillips Equipment has 75,000 bonds outstanding that are selling at par.
Bonds with similar characteristics are yielding 7.5 percent. The company
also has 750,000 shares of 6 percent preferred stock and 2.5 million