Orca Industries Below Are the Two Most Recent Balance Sheets

question 29

Multiple Choice

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%
$\begin{array}{llcc}\text { Balance Sheet }&2011&2010 \\ \text { Assets: } &\\ \text { Cash} &\$10,000&\$6,000\\ \text { Accounts Receivable (net) } &6,000&1,500\\ \text { Inventory } &8,000&10,000\\ \text { Long-lived assets} &12,000&11,000\\ \text { Less: Accumulated depreciation } &\underline{(4,000) }&\underline{(2,000) } \\ \text { Total assets } &\underline{\$32,000}&\underline{\$26,500}\\\\ \text { Liabilities and Stockholders' Equity: } &\\ \text {Accounts payable } &\$5,000&\$6,000\\ \text { Deferred revenues } &1,000&2,000\\ \text { Long-term note payable } &10,000&10,000\\ \text { Less: Discount on note payable} & (800) &(1,000) \\ \text {Common stock } &12,000&6,000\\ \text { Retained earnings} &\underline{4,800}&\underline{\$3,500}\\ \text {Total liabilities and stockholders' equity } &\underline{\$32,000}&\underline{\$26,500}\\\\ \text { Income Statement} &\\ \text { For the year ended December 31, 2011 } &\\ \text { Revenues} &&\$42,000\\ \text { Cost of goods sold } &&(24,000) \\ \text { Depreciation expense} &&(2,000) \\ \text { Interest expense } &&(3,000) \\ \text { Bad debt expense} &&(2,000) \\ \text { Other expense (including income taxes) }& &\underline{(9,000) }\\ \text { Net income } &&\underline{\$2,000}\\\end{array}$

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Refer to the information for Orca Industries. The return on common shareholders' equity for Orca Industries is

• A) 15.2%
• B) 13.5%
• C) 10%
• D) 11.9%

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Definitions:

Emerging Market

A country's market that has some characteristics of a developed market but does not fully meet its standards, showing potential for economic growth.

Window of Opportunity

A limited period during which an advantageous action can be taken or a goal can be achieved before the conditions change.

Barriers to Entry

Obstacles that make it difficult for new entrants to enter a market, including high start-up costs, legal restrictions, and existing competition.

EBIAT

Earnings Before Interest After Taxes, a financial metric that measures a company's profitability excluding interest expenses but after taxes.