Sweet Tooth Bakery bakes and sells pies Custom Essay

1. Sweet Tooth Bakery bakes and sells pies. Sweet Tooth has annual fixed costs of $880,000 and a variable cost per pie of $7.50. Each pie sells for $15.50 each. The firm expects to sell 500,000 pies annually. What is the break-even point in pies? (Points : 1) 190,440 280,000 200,000 110,000 2. How frequently do corporations generally pay dividends? (Points : 1) Annually Semi-annually Quarterly Monthly 3. A high degree of variability in a firm’s earnings before interest and taxes refers to (Points : 1) business risk. financial risk. financial leverage. operating leverage. 4. Bob’s Baked Goods Company reported the following income statement for 2009: Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes (30%) 210,000 Net Income $490,000 Earnings Per Share $4.90 If Bob’s sales next year increase by 20%, Bob’s EBIT will increase: (Points : 1) 20%, showing no operating leverage. 20%, showing no financial leverage. over 35%, due to operating leverage. over 35%, due to operating leverage and financial leverage. 5. When deciding upon how much debt financing to employ, most practitioners would cite which of the following as the most important influence on the level of the debt ratio? (Points : 1) providing a borrowing reserve maintaining desired bond rating ability to adequately meet financing charges exploiting advantages of financial leverage 6. JBC Corp. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet JBC Corp. stock declined by 3% the day of the announcement. RBG Corp. declared a dividend of $2 per share, which was the same as the prior year, and its stock increased in value by 2% on the day of the announcement. These events could be most readily explained by the (Points : 1) information effect. clientele effect. expectations theory. residual dividend theory. 7. Bob’s Baked Goods Company reported the following income statement for 2009: Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes (30%) 210,000 Net Income $490,000 Earnings Per Share $4.90 If Bob’s sales next year increase by 20%, what will Bob’s earnings per share be? (Points : 1) $5.76 $6.45 $7.14 $7.58 8. Amish Enterprises makes wooden play sets. The company pays annual rent of $400,000 per year and pays administrative salaries totaling $150,000 per year. Each play set requires $400 of wood, ten hours of labor at $70 per hour, and variable overhead costs of $100. Fixed advertising expenses equal $100,000 per year. Each play set sells for $3,200. What is Amish Enterprises’ break-even output level? (Points : 1) 340 play sets 325 play sets 297 play sets 258 play sets 9. Assume that the tax on dividends and the tax on capital gains is the same. All else equal, what would a prudent investor prefer? (Points : 1) The prudent investor would be indifferent between receiving dividends or capital gains. The prudent investor would prefer dividendsa dollar today is always worth more than a dollar to be received in the future. The prudent investor would prefer capital gainsthe capital gain tax liability can be deferred until gains are realized. More information is needed. 10. Financial leverage is distinct from operating leverage since it accounts for (Points : 1) use of debt and preferred stock. variability in fixed operating costs. variability in sales. changes in EBIT.

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