Exam 1: Corporate Finance and the Financial Manager

Saskatoon Smelting is a corporation that earned $4 per share before it paid any taxes.The firm retained $2 of after-tax earnings for reinvestment,and distributed what remained in dividend payments.If the corporate tax rate was 25% and dividend earnings were taxed at 15%,what was the value of the dividend earnings received after tax by a holder of 10,000 shares of Saskatoon Smelting?

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

Tofino Toffee is a corporation that earned $5 per share before it paid any taxes.The firm retained $2.50 of after-tax earnings for reinvestment,and distributed what remained in dividend payments.You hold 6,000 shares of Tofino Toffee in a tax-free savings account,and 4,000 shares outside of a tax-free savings account.If the corporate tax rate was 25% and dividend earnings were taxed at 15%,what was the value of your dividend earnings received after all taxes are paid?

Windsor Windows earns $4.50 per share before taxes and pays a dividend of $2.00 per share.The corporate tax rate is 30%,the personal tax rate on dividends is 15%,and the personal tax rate on non-dividend income is 40%.What is the after-tax amount an individual would receive per share from the dividend?

You own shares in two different companies,Ace Holdings,and Beta Inc.Ace Holdings earns $6.00 per share before taxes,has a corporate tax rate of 25%,and pays out 50% of its after-tax earnings as dividends.Beta Inc.earns $4.00 per share before taxes,has a corporate tax rate of 15%,and pays out 100% of its after-tax earnings as dividends.Which company pays you a higher dividend,and by how much?

You hold 1,000 units of Calgary Commercial Property,a real estate investment trust (REIT).The REIT announces a profit of $10 per share,of which it retains $4 for reinvestment and distributes the rest as dividend payments.Given your personal tax rate of 40%,and the tax rate on dividends is 15%,how much tax must you pay on your holdings?

The Valuation Principle shows how to make the costs and benefits of a decision comparable so that we can evaluate them properly.

You own 100 shares in each of two different companies,Ace Holdings,and Beta Inc.Ace Holdings earns $6.00 per share before taxes,has a corporate tax rate of 25%,and pays out 50% of its after-tax earnings as dividends.Beta Inc.earns $4.00 per share before taxes,has a corporate tax rate of 15%,and pays out 100% of its after-tax earnings as dividends.The tax rate on dividend income is 15%.If all of your shares are held outside a TFSA,what is the total after-tax income you receive from your dividends?

A company's board of directors chooses to provide a comprehensive health care plan for the families of all employees,despite the large cost.They argue that this will not only increase the number of employees who stay with the firm,and thus reduce some costs involved in employee turnover,but also increase the employees' diligence and industry.What general principle is being argued by the board of directors?

What are the main differences between the TSX and the TSX Venture Exchange?

How is a corporation different from most of the other forms of business organizations?

Companies that attract the interest of just a few investors are said to be:

Why in general do financial managers make financial decisions in a corporation,rather than the owners making these decisions themselves?

What is the term for the applicable price that I will pay,if I have to buy a stock?

Which type of financial institution is involved in many different aspects of the financial cycle,brokering many of the transactions that take place between institutions?

Which of the following is typically the major factor in limiting the growth of a sole proprietorship?

Raising new capital by issuing bonds is an example of a commercial banking activity.

Who is typically responsible for the day-to-day running of a corporation?

Which of the following would be more typically the responsibility of a controller rather than a treasurer?

A corporate raider gains a controlling fraction of the shares of a poorly managed company and replaces the board of directors.How does the corporate raider hope to make a profit in this case?