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C214 Pre-Test Q & A 1.What is included in the Income Statement and NOT in the Statement
of Cash Flows?: Depreciation Expense
2.Computation of Net Income:
A co. sold products in 2014 for $120k and collected $100k cash and re- mainder in 2015. Co. incurred $70k expenses for 2014 and paid $100k which included $30k for expenses incurred in 2013. What is net income for 2014?-
: Computation of Net Income (R-E=NI)
$50,000
Net Income = $120k - $70k = $50k, or Revenues - Expenses Incurred = Net Income
3.Retained Earning Statement:
The beginning retrained earnings on 1/14/14 is $25k. The NI for 2014 is $50k and the dividend payout ratio is 25% of NI. What are retained earnings on 12/31/14?: Retained Earning Statement:
$62,500
Retained earnings on12/31/14 = $25k + $50k - (.25x$50k) = $62,500
4.Retained Earnings:
Firm reported RE of $300 in 12/31/12. For 12/31/13 firm reports RE of $400 and pays dividends of $25. What is NI in 2013?: Retained Earnings: Answer $125 Logic is $300 from $400 is $100 plus the $25 dividend totals
out to $125. 300 + NI - 25 = 400: NI=125, so
300+125-25=400
5.Balance Sheet:
Basic equation for the Balance Sheet is?: Balance
Sheet: Equity = Assets - Liabilities, or it can also be
seen as 1 / 4
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Assets = Liabilities + Equity 6.Investment: Simple Interest: An investment of $10k made today at 8% simple interest for 3 yrs and 9 mo. will yield in principle and interest of?: Interest: Simple Interest
$13,000
Principal + Interest = $10,000 + (10k x .08x3.75) = $13k
7.Investment returns:
A stock will be worth $36 at EOY and will pay dividend of $2.25.How much should an investor pay for the stock if investor expects a 12% rate of return?: Investment returns: 2 / 4
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Highest price for stock = X+0.12= $36+$2.25/1.12 (add "1" to 12% as "X" variable) =
$38.25/$1.12 = $34.15
8.Investment: Rate of Return
You want to purchase Ord common stock at $55/share, hold 1 year, and sell after $3 dividend is paid. What would stock price be to satisfy your required ROR of 15%?: Investment: Rate of Return
$60.25
Price=$55 + (.15x$55) -3 = $60.25
9.Investment: Stocks
Two types of expected returns when investing in stocks?: Investment: Stocks 1.Dividends 2.Appreciation of the price of stock = Total return in the investment of stock
10.Investment: Stock
A broker purchased stock that pays $1.15 annual dividend for %16 w/a
required ROR of 15%. What is the actual return if sold at EOY 1 for $19?: -
Investment: Stock
ROR=(($1.15+$19)-16) /16 = .259 or 25.9% ((Dividend+EOY stock price)-begin stock price) / by begin stock price = actual return %.
11.Gordon Growth Model:
A stock is expected to pay dividend of $5 for current year and is expected to grow at rate of 4% per year. If required ROR is 10%, what is the max amount that should be paid for the stock today?: Gordon Growth Model:
$83.33
GGM=5/(.10-.04)=$83.33
Tip: "grow rate of dividend" language = GGM
12.Gordon Growth Model:
A person buys shares of a co at $45. Recently paid a $2 annual dividend which is expected to grow by 10% per year.
What is the expected return per year?: Gordon Growth
Model: 14.9%
$45=(2x1.10) / (ER-.10) 3 / 4
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$45ER -
$45x.10=$2.20
ER=($4.5+$2.2)/45=14
.9%
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