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    Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast percentages to two decimals.)
    Banner, Inc. Balance Sheet
    December 31, 2004
    Current assets $890,000
    Net fixed assets 1,000,000
    Total $1,890,000
    Liabilities and Owners' Equity
    Accounts payable $160,000
    Accrued expenses 100,000
    Notes payable 700,000
    Long-term debt 300,000
    Total liabilities 1,260,000
    Common stock (plus paid-in capital) 360,000
    Retained earnings 270,000
    Common equity 630,000
    Total $1,890,000

    1. Banner's projected current assets for 2005 are:
    a. $1,000,000.
    b. $1,120,000.
    c. $1,500,000.
    d. $1,260,000.

    2. Banner's projected accounts payable balance for 2005 is:
    a. $160,000.
    b. $120,000.
    c. $200,000.
    d. $300,000.

    3. Banner's projected fixed assets for 2005 are:
    a. $1,120,000.
    b. $1,260,000.
    c. $1,000,000.
    d. $2,380,000.

    4. ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.)
    a. $1,056
    b. $4,568
    c. $7,621
    d. $6,577

    5. Suppose you determine that the NPV of a project is $1,525,855. What does that mean?
    a. In all cases, investing in this project would be better than investing in a project that has an NPV of $850,000.
    b. The project would add value to the firm.
    c. Under all conditions, the project's payback would be less than the profitability index.
    d. The project's IRR would have to be less that the firm's discount rate.

    6. Table 1
    Average selling price per unit $16.00
    Variable cost per unit $11.00
    Units sold 200,000
    Fixed costs $800,000
    Interest expense $ 50,000

    Based on the data in Table 1, what is the break-even point in units produced and sold?
    a. $130,000
    b. $140,000
    c. $150,000
    d. $160,000

    Based on the data contained in Table 1, what is the degree of operating leverage?
    a. 1.00 times
    b. 2.00 times
    c. 3.00 times
    d. 4.00 times
    e. 5.00 times

    Based on the data contained in Table 1, what is the contribution margin?
    a. $5.00
    b. $4.00
    c. $3.00
    d. $2.00

    Based on the data contained in Table 1, what is the degree of financial leverage?
    a. 3.33 times
    b. 2.50 times
    c. 1.50 times
    d. 1.33 times

    Based on the data contained in Table 1, what is the degree of combined leverage?
    a. 6.33
    b. 6.67
    c. 7.33
    d. 7.67

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    Solution Summary

    The solution explains some multiple choice questions relating to ABC, NPV, break even point, operating leverage