Question 7 A financial lease is usually a shorter-term lease in which the lessor

Question

Question 7

A financial lease is usually a shorter-term lease in which the lessor is responsible for insurance, taxes, and upkeep.

Select one:

True

False

Question 8

Given a tax rate of 15% for income up to $50,000, a tax rate of 25% for income between $50,001 and $75,000, and a tax rate of 34% for income between $75,001 and $100,000, and a tax rate of 39% for income above $100,001, if ABC Inc. reports taxable income of $175,000. How large is this firm's tax bill?

Select one:

a. $61,250

b. $48,750

c. $91,125

d. $51,500

e. $55,000

Question 9

Eight months ago, Turner purchased 100 shares of Delta Frames stock at a price of $46.25 a share. Delta pays a quarterly dividend of $2.10 a share. Today, Turner sold all of his shares for $49 per share. What is Turner's total capital gain on this investment?

Select one:

a. $355

b. $275

c. $155

d. $200

e. $180

Question 10

Watson's Automotive has a $375,000 bond issue outstanding that is selling at 85 percent of face value. Watson's also has 21,000 shares of common stock outstanding with a market price of $21 a share. What is the weight of the debt as it relates to the firm's weighted average cost of capital?

Select one:

a. 48 percent

b. 44 percent

c. 42 percent

d. 40 percent

e. 41 percent

Explanation / Answer

Question - 7

The Answer is “FALSE”

An operating lease is usually a shorter-term lease in which the lessor is responsible for insurance, taxes, and upkeep.

Question - 8

The Answer is “d. $51,500”

Tax for the first $50,000 = $7,500 [ $50,000 x 15%]

Tax for the next $25,000 = $6,250 [$25,000 x 25%]

Tax for the next $25,000 = $8,500 [$25,000 x 0.34]

Tax for the remaining $75,000 = $29,250 [ $75,000 x 39%]

Therefore, Firms total tax bill = $7,500 + 6,250 + 8,500 + 29,250 = $51,500

Question - 9

The Answer is “b. $275”

Capital gain on this investment = [Selling price – Purchase Price] x Number of shares purchased

= [$49.00 – 46.25] x 100 Shares

= $2.75 x 100 Shares

= $275

Question – 10

The Answer is “c. 42 percent

Value of Debt [Bond] = $375,000 x 85% = $318,750

Value of common stock = 21,000 shares x $21 = $441,000

Total Value = $318,750 + 441,000 = $759,750

Weight of the debt relates to the firm's weighted average cost of capital

=[ $318,750 / 759,750 ] x 100

= 42%

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