The Following Information Pertains to Barnum Company: Balance Sheet $31,20 \times 2$

question 93

Multiple Choice

The following information pertains to Barnum Company: Balance Sheet
At December $31,20 \times 2$
$\begin{array}{llll}\text { Current ass ets } & \$ 18,700 & \text { Current liabilities } & \$ 7,600 \\\text { Long- term assets } & \underline{29,700} & \text { Long- term liabilities } & 13,250\\&& \text { Stockholders' equity } & \underline{27,550} \\\text { Total assets } & \$ 48,400 &\text { T otal liabilities and s.e. } & \$ 48,400\end{array}$ Barnum Company Income Statement
For the Year Ended December 31, 20X2
$\begin{array}{ll}\text { Sales } & \$ 106,950 \\\text { Less: Cost of goods sold } & \underline{(61, \$ 00) } \\\text { Gross profit } & \$ 45,150 \\\text { Less: Operating expenses } & \underline{31,700} \\\text { Operatingincome } & \$ 13,450 \\\text { Less other expenses: interest } & \$ 1,300) \\\text { Income before taxes } & \$ 12,150 \\\text { Less: Income tax expense } & \$ 4,850) \\\text { Net income } & \$ 7,300\end{array}$ There were 1,000 shares of common stock outstanding with a market value of $75 as of December 31, 20X2. Dividends declared and paid was $5 per share. The dividend yield ratio for 20X2 is:

• A) 9.7%
• B) 68.5%
• C) 6.7%
• D) 100.0%

---

Definitions:

Required Rate of Return

The required rate of return is the minimum annual percentage earned by an investment that will entice individuals or companies to put money into a particular security or project.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, usually with fixed dividends.

After-Tax Cost of Debt

The interest expense on debt adjusted for taxes, showing the actual cost of debt financing after considering the tax shield.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.