Sam Jones Has an Engineering Firm

question 50

Multiple Choice

Sam Jones has an engineering firm.He wants to build a new headquarters building.The building will cost $1,500,000.He will put down $450,000 and have a bank finance the remainder at prime plus 2 percent.The prime lending rate is currently 8.5 percent.Sam will withdraw the money for the down payment from his mutual fund account where he has earned 13% for the last ten years.What percentage of the building is being equity financed?

• A)30%
• B)10.5%
• C)13%
• D)70%

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Definitions:

Common Stock

represents units of ownership in a corporation, giving shareholders voting rights and a share in the company’s profits through dividends.

Market Value

The current quoted price at which an asset or service can be bought or sold in a marketplace.

Owners' Equity

The residual interest in the assets of an entity after deducting liabilities, representing the ownership interest of shareholders.

Stock Option Plan

A compensation strategy used by companies to grant employees the right to purchase company shares at a predetermined price after a specified period.