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Business

Accounting

stock

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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As a financial analyst at Deutsche Bank, you are analyzing the after tax returns for your client. Suppose your client bought a share of stock of AMD at $60, a share of stock Oracle at $70, and a share of IBM at $80. A year later, after your client received a $3 dividend from AMD, $4 dividend from Oracle, and $5 from IBM, he sold the stock AMD at $65 per share, sold Oracle at $75, and sold IBM at 80. What are the expected after tax returns for your client if your client is (a) a church investment fund (tax-exempt status) (Sample answer: 10.55%) (b) a corporation paying tax at 21% (remember that corporations may exclude 70% of dividends received from domestic corporations in the computation of their taxable income) (Sample answer: 10.55%) (c) an individual paying tax at 21% on capital gains and dividend income at 35%? (Sample answer: 10.55%) (d) a security dealer paying tax at 28% on both dividend income and capital gains? (Sample answer: 10.55%)
One year ago, your friend purchased 82shares of PantherCo. stock for $2,165.98. The stock does not pay any regular dividends but it did pay a special dividend of $0.51 a share last week. This morning, she sold her shares for $30.97 a share. What was the total percentage return on this investment? Answer as a percentage (e.g. 0.01 is 1.0 %) but without the percentage (%) symbol.
A sophisticated investor, B. Graham, sold 250 shares short of Amwell, Inc. at $31 a share. The price of the stock subsequently fell to $26 before rising to $46 at which time Graham covered the position (that is, closed the short position). What was the percentage gain or loss on this investment? Use a minus sign to enter the amount as a negative value. Round your answer to two decimal places.
Accounting hassan has recently opened a margin account. He bought 200 shares of stock in the Abington Corporation at $80 per share by paying 70 percent initial margin for the stock, and shortly thereafter received a margin call from his broker. The broker explained that hassan's new account did not meet the maintenance margin requirements of 30 percent because the price of Abington stock fell right after hassan bought it. What percentage decline must Abington experience for hassan to violate the 30 percent maintenance margin requirement?
I do not understand why my total profit box is marked wrong here
Edward gives a check to Fund Investments to buy 100 shares of stock in GR8 Tech Corporation. The price of the shares is constantly fluctuating. Fund Investments asks Edward to leave the amount of the check blank and allow it to fill in the price when making the purchase. Edward agrees. Fund Investments buys the stock when the price is $4,000, but fills in the check for $5,000. The check is negotiated as payment for a $5,000 debt to Hasty Accounting Services, which takes the check in good faith and without notice of Fund Investments’ act. Hasty later learns that Fund Investments was not authorized to fill in the check for $1,000 over the price. Is Hasty an HDC? If so, for how much?
In March of this year, Ermine felt the market had nowhere to go but down. Accordingly, she sold short $15,000 of IGM stock. Her broker requires a 60% margin on short sales. Ermine covered her short position when the value of her shorted IGM shares fell to $13,000. During the time Ermine’s short position was open, IGM paid a dividend of $500. What percentage return did Ermine earn on her initial investment?
HyunJi purchased 3000 shares of a company's stock for $7 per share. Her purchase represents a 10% ownership in the firm. The shares have increased in value to today's market value of $23 per share. Assume the company goes bankrupt and owes $870000 more in debts than the firm can pay after liquidating all of its assets. What is the maximum loss per share HyunJi will incur on this investment? Multiple choice $7 per share $15 per share, computed as ($7 +23) / 2 $0 per share $29 per share, computed as (10% x $870000) / 3000 shares $23 per share
Understand the reporting effect: If Brooke sells the stock and includes the $80,000 gain in pretax income, will she get her bonus? Assume any bonus paid to Brooke is not included in calculating pretax income. No, Brooke will not receive a bonus since bonuses are only paid out when operational profits grow by 10%, but this is a capital gain on the sale of an investment or shares, thus it is not a component of operating earnings. She will receive a bonus only if operational profits grow by 10%. Specify the options: Instead of reporting the gain as part of pretax income, how else might Brooke report the gain on the sale? Brooke Report this profit as a capital gain or profit on the sale of an investment; it is not included in revenue or operational profits. Identify the impact: Does Brooke's decision to classify the gain on the sale of treasury stock as part of pretax income affect the company? Yes, Brooke's choice has an impact on the firm since earnings have increased as a…
One of your friends picks up the Wall Street Journal and starts choking on his decaf skinny mochaccino latte. "Look at this!" he gasps. "Amazon pays no dividends and has a market value of $828 billion. Yet, General Motors pays a dividend of 0.38 dollar per share and a market value of only $54 billion. How can this be?!" Explain to your friend how this is possible.
Slalom Corporation retains and reinvests all its earnings. So, Slalom does not pay any dividends, and it has no plans to pay dividends any time soon. A major pension fund is interested in purchasing Slalom’s stock. The pension fund manager has estimated Slalom’s free cash flows for the next 3 years as follows: $5,000,000, $9,000,000, and $12,000,000. After Year 3, free cash flow is projected to grow at a constant 4%. Slalom’s WACC is 10%, the market value of its debt and preferred stock totals $27,272,727, Slalom has $10,000,000 in non-operating assets, and it has 5,000,000 shares of common stock outstanding. Based on this information answer the following questions: What is an estimate of Slalom’s stock price?
Able owns 100% of ABC Corporation, which operates a restaurant. Able founds the corporation with $1,000 in capital. ABC has its own bank account, and Able does not commingle the corporation's funds with his own. ABC has never had a directors' meeting or a shareholders' meeting. ABC does not employ a bookkeeper, and its financial records are incoherent. ABC operates for six months and does not generate a profit. Shortly thereafter, a customer dies of food poisoning due to contaminated ham served by ABC. Can the customer's estate hold Able personally liable for any judgment rendered against ABC?