FIN 370 CHAPTER 2 QUESTIONS AND
CORRECT ANSWERS
firmsA2thatA2requireA2fundsA2fromA2externalA2sourcesA2canA2obtainA2themA2-A2Ans--
throughA2financialA2institutions
theA2saleA2ofA2aA2newA2securityA2directlyA2toA2anA2investorA2orA2groupA2ofA2investorsA2isA2c
alledA2-A2Ans--aA2privateA2placement
ApexA2IncA2issuedA2aA2bondA2ofA2$1,000A2whichA2paysA2interestA2semi-
annuallyA2andA2aA2couponA2interestA2rateA2ofA28%A2theA2maturityA2ofA2theA2bondA2isA215A2y
earsA2whereA2shouldA2thisA2bondA2beA2tradedA2-A2Ans--capitalA2market
whenA2homeA2pricesA2areA2fallingA2weA2wouldA2expectA2anA2-A2Ans--
higherA2mortgageA2defaultA2rates
whichA2ofA2theA2followingA2actsA2regulatesA2theA2primaryA2marketA2inA2whichA2securitiesA2
areA2originallyA2issuedA2toA2theA2publicA2-A2Ans--securitiesA2actA2ofA21933
theA2averageA2taxA2rateA2ofA2aA2corporationA2withA2ordinaryA2incomeA2ofA2$105,000A2andA
2aA2taxA2liabilityA2ofA2$24,200A2isA2-A2Ans--23%
theA2goldenA2eagleA2companiesA2inA2automobileA2companyA2forA2theA2regionA2lastA2yearA2
GoldenA2eagleA2hadA2aA2netA2incomeA2beforeA2taxesA2ofA2$540,000A2basedA2uponA2theA2f
ollowingA2taxA2chartA2whatA2wasA2goldenA2eaglesA2netA2incomeA2afterA2taxesA2(SeeA2note
sA2forA2chart)A2-A2Ans--378500
clearingA2AutoA2isA2anA2automobileA2companyA2forA2theA2regionA2lastA2yearA2GoldenA2eagl
eA2hadA2aA2netA2incomeA2beforeA2taxesA2ofA2$440,000A2basedA2uponA2theA2followingA2text
ureA2whatA2isA2creon'sA2autoA2averageA2taxA2rateA2(A2lookA2atA2notesA2forA2chart)A2-
A2Ans--.2897
lastA2yearA2GoldenA2eagleA2industriesA2hadA2aA2pre-
taxA2earningsA2fromA2operationsA2ofA2$540,000A2inA2additionA2duringA2theA2yearA2itA2receiv
edA2$70,000A2inA2interestA2fromA2bondsA2andA2HowardA2McLarenA2industriesA2andA2alsoA2
receivedA2$80,000A2fromA2itsA210%A2holdingsA2andA2rinardA2corporationA2givenA2theA2follo
wingA2corporateA2taxA2tableA2whatA2isA2theA2totalA2taxA2liabilityA2forA2GoldenA2EagleA2-
A2Ans--193460
AutumnA2leafA2glassA2companyA2hasA2anA2estimatedA2pre-
taxA2incomeA2ofA2$250,000A2aA2shareA2purchasedA2aA2nonA2depreciableA2assetA2forA2$42,
000A210A2yearsA2agoA2theA2companyA2hasA2decidedA2toA2liquidateA2theA2assetsA2overA2the
A2yearsA2yesA2itA2hasA2appreciatedA2andA2it'sA2expectedA2toA2sellA2forA2$51,000A2givenA2th
CORRECT ANSWERS
firmsA2thatA2requireA2fundsA2fromA2externalA2sourcesA2canA2obtainA2themA2-A2Ans--
throughA2financialA2institutions
theA2saleA2ofA2aA2newA2securityA2directlyA2toA2anA2investorA2orA2groupA2ofA2investorsA2isA2c
alledA2-A2Ans--aA2privateA2placement
ApexA2IncA2issuedA2aA2bondA2ofA2$1,000A2whichA2paysA2interestA2semi-
annuallyA2andA2aA2couponA2interestA2rateA2ofA28%A2theA2maturityA2ofA2theA2bondA2isA215A2y
earsA2whereA2shouldA2thisA2bondA2beA2tradedA2-A2Ans--capitalA2market
whenA2homeA2pricesA2areA2fallingA2weA2wouldA2expectA2anA2-A2Ans--
higherA2mortgageA2defaultA2rates
whichA2ofA2theA2followingA2actsA2regulatesA2theA2primaryA2marketA2inA2whichA2securitiesA2
areA2originallyA2issuedA2toA2theA2publicA2-A2Ans--securitiesA2actA2ofA21933
theA2averageA2taxA2rateA2ofA2aA2corporationA2withA2ordinaryA2incomeA2ofA2$105,000A2andA
2aA2taxA2liabilityA2ofA2$24,200A2isA2-A2Ans--23%
theA2goldenA2eagleA2companiesA2inA2automobileA2companyA2forA2theA2regionA2lastA2yearA2
GoldenA2eagleA2hadA2aA2netA2incomeA2beforeA2taxesA2ofA2$540,000A2basedA2uponA2theA2f
ollowingA2taxA2chartA2whatA2wasA2goldenA2eaglesA2netA2incomeA2afterA2taxesA2(SeeA2note
sA2forA2chart)A2-A2Ans--378500
clearingA2AutoA2isA2anA2automobileA2companyA2forA2theA2regionA2lastA2yearA2GoldenA2eagl
eA2hadA2aA2netA2incomeA2beforeA2taxesA2ofA2$440,000A2basedA2uponA2theA2followingA2text
ureA2whatA2isA2creon'sA2autoA2averageA2taxA2rateA2(A2lookA2atA2notesA2forA2chart)A2-
A2Ans--.2897
lastA2yearA2GoldenA2eagleA2industriesA2hadA2aA2pre-
taxA2earningsA2fromA2operationsA2ofA2$540,000A2inA2additionA2duringA2theA2yearA2itA2receiv
edA2$70,000A2inA2interestA2fromA2bondsA2andA2HowardA2McLarenA2industriesA2andA2alsoA2
receivedA2$80,000A2fromA2itsA210%A2holdingsA2andA2rinardA2corporationA2givenA2theA2follo
wingA2corporateA2taxA2tableA2whatA2isA2theA2totalA2taxA2liabilityA2forA2GoldenA2EagleA2-
A2Ans--193460
AutumnA2leafA2glassA2companyA2hasA2anA2estimatedA2pre-
taxA2incomeA2ofA2$250,000A2aA2shareA2purchasedA2aA2nonA2depreciableA2assetA2forA2$42,
000A210A2yearsA2agoA2theA2companyA2hasA2decidedA2toA2liquidateA2theA2assetsA2overA2the
A2yearsA2yesA2itA2hasA2appreciatedA2andA2it'sA2expectedA2toA2sellA2forA2$51,000A2givenA2th
