BA 324 - Introduction to Finance
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Review of Accounting - Problem Solving

<< Back to Review of Accounting - Chapter 2

I am including a few problems that you can practice solving. If you cannot come up with the answers that I give you, then email me for help.

1) A Company had sales of $240,000 and cost of goods sold of $108,000. What is the gross profit margin (ratio of gross profit to sales)?

Answer: 55%

2) A firm has $1,000,000 in its common stock account and $2,500,000 in its paid-in capital account. The firm issued 100,000 shares of common stock. What was the original issue price if only one stock issue has ever been sold?

Answer: $35 per share

3) A firm has $2,000,000 in its common stock account and $20,000,000 in its paid-in capital account. The firm issued 500,000 shares of common stock. What is the par value of the common stock?

Answer: $4 per share

4) A firm with earnings per share of $5 and a price-earnings ratio of 15 will have a price of:

Answer: $75.00

5) Assuming a tax rate of 35%, depreciation expenses of $400,000 will reduce taxes by: Answer: $140,000

6) Assuming a tax rate of 40%, the after-tax cost of a $200,000 dividend payment is:

Answer: $200,000

7) A firm has current assets of $360,000 and fixed assets of $640,000. Current liabilities are $90,000 and long-term liabilities are $160,000. There is $90,000 in preferred stock outstanding and the firm has issued 10,000 shares of common stock. Compute book value (net worth) per share.

Answer: $66.00

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