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Multiple Choice - Ratios, EVA, balance sheet

1. On its 1999 balance sheet, Sherman Books showed a balance of retained earnings equal to $510 million. On its 2000 balance sheet, the balance of retained earnings was also equal to $510 million. Which of the following statements is most correct?

a. The company must have had net income equal to zero in 2000.
b. The company did not pay a dividend in 2000.
c. If the company's net income in 2000 was $200 million, dividends paid must have also equaled $200 million.
d. If the company lost money in 2000, they must have paid a dividend.
e. None of the statements above is correct

2. Scranton Shipyards has $20 million in total net operating capital. The company's WACC is 10 percent. The company has the following income statement:

Sales $10.0 million
Operating costs 6.0 million
Operating income (EBIT) $ 4.0 million
Interest expense 2.0 million
Earnings before taxes (EBT) $ 2.0 million
Taxes (40%) 0.8 million
Net income $ 1.2 million

What is Scranton's EVA?

a. $ 400,000
b. -$ 800,000
c. $1,200,000
d. $2,000,000
e. $4,000,000

Please see attached for full queston.


Solution Preview

If the retained earnings did not change that means no net income was transferrd to the balance sheet.The possibilites are that the net income was either zero or the entire net income was paid out as dividends. The possibility of net income being exactly zero is very less. It would be difficulty for ...

Solution Summary

The solution explains the calculation of EVA and the use of current ratio