SOLVED

1) In which of the following aspects of business planning do Pro Forma Financial Statements play a key role? A) Communicating the business plan to stakeholders B) Collecting data required to formulate the businesses of options C) Evaluating and selecting the most suitable business option D) Setting the teams and objectives of the business E) Identifying the business options available to the business 2) Primrose Ltd. is considering a new issue of common shares to implement a share for share exchange to acquire 100% ownership of Avalanche Industries. Primrose has 5 million shares outstanding and Avalanche has 2,500,000 shares outstanding. Primrose’s net income after tax is $50 million. Avalanche industries has a net income after tax of $8 million. The merger will result in A) Diluted earnings per share of $3.20 a share for Avalanche B) Diluted earnings per share of $10.00 a share for Primrose C) Diluted earnings per share of $7.73 a share for Primrose D) Diluted earnings per share of $16.80 a share for Avalanche E) No diluted earnings per share for either company 3) The primary role of pro forma statements is to A) Model the external impacts on a course of action B) Predict the financial outcome of a course of action C) Allocate resources to business aims and objectives D) Represent the financial impact of courses of action E) Identify the financial gaps between clients and their implementation 4) If sales increased by 12%, and EBIT increased by 5%, which of the following is a possible reason? A) Operating expenses increased B) Liabilities increased C) Shares were diluted D) Income tax rates increased E) Volumes sold decreased 5) Company XYZ makes insect repellent and pays $3000 for rent, $32,000 for raw materials, $70,000 for salaries, $12,000 for depreciation and $15,000 for spray bottles. Variable costs are A) $15,000 B) $47,000 C) $70,000 D) $85,000 E) $117,000 6) Fran Tex, a family-owned corporation, with 120,000 shares outstanding and projected net income after taxes of $3,024,000 has been approached by Mercury Textile to merge. Mercury Textile has 3 1/2 million shares outstanding and a projected net income after tax of $14,700,000. It wants to give Fran Tex shareholders 5.8 Mercury shares for each Fran Tex share. Assume Mercury Textile shares will be newly issued. What will be the EPS of the combined companies? A) $0.74 B) $1.06 C) $4.20 D) $4.22 E) $25.20 7) CapiCal Enterprises Hydro contract specifies that over each three-month billing period, the Company will pay a flat fee for electrical consumption until a specified level is reached. Then CapiCal will be invoiced for each additional kilowatt hour of electricity consumed. This type of expense is called a A) Direct cost B) Indirect cost C) Variable cost D) Mixed cost E) Allocated cost 8) A business can purchase Machine “A” for $70,000. Cost per unit output would be $15. It could purchase Machine “B” for $127,000. Cost per unit would be $12. Both machines are depreciated on a straight-line basis over 10 years. The product retails for $20 and sells 40,000 units. If sales are expected to increase by 15% next year, which machine is the better financial choice? A) Machine A as it has a lower price B) Machine B as it has a lower unit cost C) The machines provide the same financial equivalent D) Machine A as it provides a higher income E) Machine B as it provides a higher income 9) The best way to apply the concept of operating leverage is to realize that A) High fixed costs compared to variable costs will always produce a higher EBIT B) Higher variable costs compared to fixed costs will always produce higher EBIT C) High fixed costs compared to variable costs will provide greater losses as sales decline than the reverse D) High variable costs compared to fixed costs will provide greater income as sales increase rather than the reverse E) High variable costs relative to fixed costs will provide greater losses as sales decline rather than the reverse 10) Pizza is generally considered a recession proof commodity offering. Which of the following will have the greatest impact on a pizza chain’s sales? A) Bargaining power of customers B) Competitive pressure C) General economic conditions D) Availability of resources E) Competitive product innovation 1