Companies Generate Income from Their "Regular" Operations and from Other

question 43

Multiple Choice

Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income.Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%.How much was Lindley's operating income, or EBIT?

• A) $3,462
• B) $3,644
• C) $3,836
• D) $4,038
• E) $4,250

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Definitions:

Strong Axiom

Often refers to the strong axiom of revealed preference, which is a more stringent condition than the weak axiom, ensuring choices are consistent across different sets of available options.

Revealed Preferences

A theory that determines preferences by observing consumer choices and behaviors, rather than through direct inquiry about preferences.

Bundle

A collection of goods or services that are sold together as a single package deal.

Weak Axiom

A principle in consumer theory stating that if a consumer prefers bundle A over bundle B when prices are constant, then the consumer will not choose B over A if the price of A decreases and B's price remains unchanged.