You Have the Following Information About a Firm: Total Asset

question 67

Multiple Choice

You have the following information about a firm: total asset = $350,000; common stock equity = $175,000; ROE = 12.5%.What is the firm's earnings available for common stockholders?

• A) $43,750
• B) $21,875
• C) $50,000
• D) $47,632

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Definitions:

Financial Leverage

The use of borrowed money (debt) to finance the purchase of assets, with the expectation that the income or capital gain from the assets will exceed the cost of borrowing.

Voting Right

The entitlement of the shareholders of a company to vote on corporate policy, including decisions regarding the corporate board.

Treasury Stock

Shares that were issued and subsequently reacquired by the company, reducing the amount of outstanding stock on the open market.

Authorized Stock

Authorized stock refers to the maximum number of shares that a corporation is legally authorized to issue according to its corporate charter.