Answer the Following Questions Using the Information Below:
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question 5

Multiple Choice

Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}$
-What is the value of the operating assets belonging to the Alpha Division (b) ?

• A) $8,666,667
• B) $14,000,000
• C) $13,000,000
• D) $14,303,600

Determine the cost of new equity and the effect of flotation costs.

Analyze the impact of capital structure on WACC and company valuation.

Understand the difference between before-tax and after-tax cost of debt.

Calculate the required rate of return on preferred shares.

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Definitions:

Horizontal Analysis

Horizontal Analysis is a financial analysis technique that compares historical financial information over a sequence of reporting periods.