Question

1. Shareholders’ wealth can be defined as ______

		total assets minus total liabilities.
		The current stock price times the number of outstanding shares.
		fixed assets minus long-term debt minus net working capital.
		the residual value of a corporation after taxes have been paid.

2.

The average tax rate is defined as the ______

		initial tax rate which applies when a firm first earns taxable income.
		total tax paid divided by the total taxable income.
		highest tax rate listed on the latest tax table.
		The tax rate applied to the next taxable dollar earned.

3.

Which one of the following is a working capital management decision?

		Should a new machine be purchased this year?
		Should the accounts payables level be decreased?
		Should debt or equity financing be used to purchase a building?
		Should 10 or 15-year bonds be issued?

Answer 1

1)

Shareholders wealth determines the future expected cash flows for a shareholder. In other words it is the market value of shares.

So answer is The current stock price times the number of outstanding shares

2)

The average tax rate is defined as the

total tax paid divided by the total taxable income

3)

Working capital management pertains to managing the liquidity of the firm through working capital cycles which include current assets and current liability. The decision on account payable being a current liability is a working capital management decision.

Answer is Should the accounts payables level be decreased?