Question MGMT 640 Midterm Exam

Ques. 1) Which of the following is not an advantage of the corporate form of business organization?
a. Sell debt or equity in public capital markets
b. Owners have limited liability
c. Owners are subject to double taxation
d. May continue in business in perpetuity

Ques. 2) Working capital management involves decisions related to the following:
a. Purchase of production machines
b. Extending credit to customers
c. Signing a 3 year lease for an office building
d. Negotiating with city officials a 2-year tax abatement plan for a new factory

Ques. 3) Which of the following statements is correct:
a. Market forces provide sufficient incentives for ethical behavior
b. It would be easier to do business if there were no ethical norms
c. Government regulations are necessary to ensure ethical behavior
d. An ethical culture with good internal controls promotes ethical behavior

Ques. 4) In 2010, Jack’s Art Gallery sold 200 original works of art for $1,240,520. The gallery acquired the works sold for $530,000. Each painting was framed using predesigned framing kits in the gallery’s own workshop. The firm bought 100 kits in January for $50,000, 100 kits in March for $60,000.,100 kits in May for $40,000 and 100 kits in August for $30,000. Other costs of operation, including salaries, supplies, rent, etc., totaled $200,000. The company depreciated its assets by $120,000 and paid interest on loans totaling $55,000. Assuming no other costs and that Jack’s Art Gallery used FIFO in its inventory management, the firm’s EBITDA for 2010 was:
a. $280,520
b. $230,520
c. $400,520
d. $440,520

Ques. 5) Jake Smith opened his Balinese coffee shop business in downtown Boise on January 1st 2010. On December 31st, 2010, he sat down with his accountant to figure out how his business had done in its first year and heaved a sigh of relief when his accountant reported that his EBT came to $20,000. Revenues, at $1,050,000 looked good. His expenses were as follows:

Salaries and benefits paid to employees $210,000
Jake’s own salary $100,000
Supplies (coffee, tea, milk, pastries, etc.) $620,000
Cost of Restaurant grade coffee machine $30,000
Miscellaneous operating costs $44,000
Interest on loan $12,000
How much did Jake’s accountant allocate for depreciation and amortization?
a. $44,000
b. $14,000
c. $4,000
d. $0.00

Ques. 6) Timber firewood company reported the following numbers in its 2010 income statement:
EBIT $520,000
Depreciation $35,000
Interest expenses $24,000
General expenses $110,000

If it’s marginal tax rate was 30%, what were Timber’s cash flows from operating activities for 2010?
a. $347,200
b. $382,200
c. $496,000
d. $520,000

Ques. 7) For the year ending June 30, 2008, the Austin Corporation has current assets of $ 275,000 and total assets of $ 900,000. It also has current liabilities of $ 150,000, equity of $ 200,000, and retained earnings of $ 100,000. The marginal tax rate for the firm is 30%. How much long-term debt does the firm have?
a) $ 250,000
b) $ 350,000
c) $ 315,000

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