Exam 1: Corporate Finance and the Financial Manager

You are a unit holder in Pembina Properties,a real estate investment trust (REIT).The REIT announces a profit of $8 per share,of which it retains $3 for reinvestment and distributes the rest as dividend payments.Given your personal tax rate of 30%,and the tax rate on dividends is 15%,how much tax must you pay per unit?

Katie owns 12.5% of the stock of the Gimli Corporation.The tax rate on dividend income is 24%.If Gimli makes a dividend payment of $25,000,000 paid proportionally to its shareholders,how much of this amount would Katie receive after taxes?

A factory owner wants his workers to produce as many widgets as they can,so he pays his workers based on how many widgets they produce.However,in order to make sure that the workers do not rush and produce a large number of poorly made widgets,he checks the widgets at random at various stages of their manufacture.If a defect is found in a widget,the pay of the entire section of the factory responsible for that defect is docked.How is this factory owner seeking to solve the principal-agent problem in this case?

In most corporations the owners exercise direct control of the corporation.

You hold 1,000 units of Calgary Commercial Property,a real estate investment trust (REIT).500 of those units are held inside a tax-free savings account,the other 500 are outside the tax-free savings account.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 30%,and the tax rate on dividends is 15%,what is your total after-tax income?

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 your shares of Ace Holdings are held outside of a TFSA,and your shares of Beta Inc.are held inside a TFSA,what is the total after-tax income you receive from your dividends?

Use the figure for the question(s)below. -Using the above information,how much would you receive if you sold a share of Washington Post stock?

What are the main differences between a limited partnership and limited liability partnership?

Use the figure for the question(s)below. -How much money would a stock exchange make from buying and selling 500 shares of the stock under the conditions shown above?

What are the terms for the two types of prices quoted for a stock on an exchange?

Partnerships are the most common type of business firm in the world.

Use the figure for the question(s)below. -Using the above information,how much would you pay for a share of BHP Billiton stock?

Which of the following would be best considered to be a principal-agent problem in the behaviour of the following financial managers?

Over 60% of all Canadian business profit is generated by which type of firm?

What is the major way in which the roles and obligations of the owners of a limited liability partnership differ from the roles and obligations of limited partners in a limited partnership?

Why is it possible for a corporation to enter into contracts,acquire assets,incur obligations,and enjoy protection against the seizure of its property?

What are the responsibilities of the board of directors?

Which of the following need be TRUE for an asset to be considered liquid?

It is generally not the duty of financial managers to ensure that a firm has the cash it needs for day-to-day transactions.

Briefly discuss the issues in the principal-agent problem.