Question 20 . 20. In the January 16, 2008 edition of the Wall Street Journal, lo

Question

Question 20

.    20. In the January 16, 2008 edition of the Wall Street Journal, looking at the stock transactions on the New York Stock Exchange, the price of a share of McDonald's stock was: $53.67. You buy the stock. Unfortunately this gets you thinking and you're hungry. (I know, what does this last bit of information have to do with finance? Trust me - read on. FYI, this is obviously NOT a test bank question.) You buy a Big Mac for $2.79. Considering these two transactions (the stock and the Big Mac in that order), they are examples of :

.

.     

.    a. a secondary and a primary market transaction

.

.     

.    b. two primary market transactions

.

.     

.    c. two secondary market transactions

.

.     

.    d. really bad transactions! The stock was overpriced and have you ever looked at how much fat is in a Big Mac?

Question 21

Problem 1. Below are three line items from a corporation's Income Statement. Select the correct line to use and compute the federal tax.Sales:                          $335,000Cost of Goods Sold:     $225,000Net Profit Before Tax: $ 82,000

Question 22

Problem 2-2. A corporation with sales of $250,000 (OK it's a small corporation!) paid $17,150 federal tax on taxable income of $85,000. They also had an end-of-year party where they ordered 50 Big Macs at $2.79 each. Given the above what was their:a. Average tax rate (4 points)b. Marginal tax rate (4 points)and if you try to do anything with the Big Macs to solve this problem - you eserve to get it wrong.

Question 23

Problem 2-3. OK here comes the big word problem!IMTU Corporation (it stand for " Made This Up") had sales last year of $1,000,000. They sell heat shields to place on your lap for stupid McD's customers who insist on placing a cup of hot coffee between their legs. The materials cost $100,000 (that's good) but the labor to put them together costs $700,000 (yes they are union and yes the company is looking to move this operation "off-shore" next year but that's beyond the scope of this course). Advertising was just $50,000, as they mostly use word-of-mouth. They did need to raise some money this year. The bank loaned them $150,000 at 8% (that interest is due this year). The interest didn't worry them too much as it was partyly off-set by the dividend check they received from McDonalds for $8,000 (hmmmmm - I wonder if there is a cinflict of interest here?) Anyway, all things considered, "it was a very good year" (and they are not even 17 - there's a joke or trivia item imbedded here - one bonus point if you can explain what it is), so much so they paid their loyal shareholders $50,000 in common stock dividends. OK, given all that, what was their Federal tax bill?  NOTE: you MUST show (type in) all work. Label each line item and indicate clearly what your final answer is. VERY FEW points if all you show me is just your final answer.

Question 24

Problem 2.4. According to the May 19th edition of the WSJ, 6 month CDs were yielding 3.45% (nominal rate of interest). If risk were considered to be 0 (zero) and inflation was expected to average 3% for the next two years, what should one conclude the real rate of interest to be?

Question 25

Problem 2.5. The Acme Bank and Storm Dood Company (good old "AB&SDC") is trying to determine what rate of interest they should pay on the new 6 month CDs they are trying to get customers to buy. Looking at the WSJ here's some interest rates they found:Prime: 6%; LIBOR: 3.25%; Fed Funds: 3%; 10 Month T-Note: 4%; 3 Month T-Bill 2.8%.Believe it or not, AB&SDC has a rather shaky reputation - so much so knowledgeable investors would require an additional 8% to buy Acme's CDs to make up for their high risk of defalut (ignor maturity and liquidity issues).Given the above, what nominal rate of interest must Acme's CDs hav to pay?

.

.     

.    a. a secondary and a primary market transaction

.

.     

.    b. two primary market transactions

.

.     

.    c. two secondary market transactions

.

.     

.    d. really bad transactions! The stock was overpriced and have you ever looked at how much fat is in a Big Mac?

Explanation / Answer

Answer - 20

A primary market is a place where the transaction takes place between the buyer and the seller. Here, the seller would be the original and the primary owner of the property. However, a secondary market is a place where the transaction takes place between the buyer and seller with the help of brokers/traders/members of the exchange.

Here, in respect of the question the first transaction is an example of secondary market transaction, whereas, the second transaction is an example of the primary market transaction.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.