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Lease cash, contract terms, balloon payments; dividend

1. Quiz Company has a 12 year lease, with payments of $250,000 made at the beginning of each year. If no purchase option exists, and the company is in the 40% tax bracket, what is the annual after-tax cash outflow on the lease?
$416,667
$250,000
$150,000
$100,000

2. Contract terms that specify things a borrower "must"do are referred to as
instructive covenants
informative covenants
negative covenants
positive covenants

3. A balloon payment is
payment made on circus debt.
a large front-end debt payment, followed by smaller payments.
a large lump-sum payment at maturity of a debt.
none of the above.

4. The yield curve's typical shape suggests
short term debt will carry higher interest rates than long term debt.
short term debt will carry about the same rates as long term debt.
short term debt will carry lower rates than long term debt.
nothing about the differences in rates due to maturity difference.

5. Suppose a firm is asked to pledge collateral for a term loan. Which of the following is likely to be least acceptable to the lender?
a rare book collection owned by the company.
the firm's inventory of industrial chemicals.
the firm's real estate holding.
securities held by the firm for investment.

6. In order to receive a dividend payment, an investor must own the stock
on the announcement date
on the date of record
on the ex-dividend date
on the payment date

7. Place the following dates related to dividend payments in proper order:
record date, announcement date, payment date, ex-dividend date
announcement date, ex-dividend date, record date, payment date
announcement date, record date, ex-dividend date, payment date
record date, announcement date, ex-dividend date, payment date

8. A company that seeks to pay a fixed dollar amount in dividends each period is following a
constant nominal payment policy
constant payout ratio policy
low-regular-and extra policy
earnings management policy

9. A company that seeks to pay a fixed dollar amount in dividends each period
will likely experience a decrease in its payout ratio over time.
will likely experience an increase in its payout ratio over time.
will likely experience stable additions to retained earnings over time.
will likely violate capital impairment restrictions frequently.

10. Stock prices usually drop by an amount nearly equal to the amount of the dividend on
the announcement date
the record date
the ex-dividend date
the payment date

Solution Preview

1. Quiz Company has a 12 year lease, with payments of $250,000 made at the beginning of each year. If no purchase option exists, and the company is in the 40% tax bracket, what is the annual after-tax cash outflow on the lease?

Answer $150,000
=Lease rental *(1-Tax rate)=$250000*(1-40%)

2. Contract terms that specify things a borrower "must" do are referred to as
Positive covenants
...

Solution Summary

This post has ten multiple choice questions addresses after-tax cash outflow,lease cash, balloon payments, yield curve and dividend

$2.19