Assume That a Firm Had Shareholders' Equity on the Balance

question 42

Multiple Choice

Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,200 at the end of 2010.During 2011 the firm earns net income of $900,pays dividends to shareholders of $400,and issues new stock to raise $250 of capital.The book value of shareholders equity at the end of 2011 is:

• A) $2,750
• B) $250
• C) $1,450
• D) $1,950

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Definitions:

Compounded Annually

The process of earning interest on an investment where the accrued interest is added to the principal sum once per year.

Nominal Rate

The nominal rate is the interest rate stated on a loan or investment agreement, not accounting for inflation or other factors that affect the real rate of return.

Compound Annual Rate

The rate at which an investment grows annually when interest is reinvested to earn additional interest.

Nominal Rate

The interest rate before adjustments for inflation or other factors, often referred to as the stated or face interest rate.