Question and Answer - 14

the building's value, the realized gain would be $85,000.
Ed has offered to purchase the building

from Pheasant with a Decemb
The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On
March 1, 2017, Jessica contributed land valued at $600,000 to the partnership in exchange for a
50% interest. She had purchased the land in 2009 for $420,000 and held it for investment
purposes (capital asset). The partnersh
Myers, who is single, reports compensation income of $69,000 in 2017. He is an active

participant in his employer's qualified retirement plan. Myers contributes $5,500 to a traditional
IRA. Of the $5,500 contribution, how much can Myers deduct? See Exhibit 11.3, Phase-out of
IRA Deduction of an Active Participant.
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Is a foreign corporation owned equally by 100 unrelated U.S. citizens considered to be a

controlled foreign corporation (CFC)? Explain.
Cooper Partnership, a calendar year partnership, made qualifying rehabilitation expenditures to a

building that it has used in its business for eight years. These improvements were placed in
service on January 5, 2016. The amount of the rehabilitation expenditures credit was $40,000.
Cooper is negotiating to sell the
Polly has been the sole shareholder of a calendar year S corporation since its inception. Polly's
stock basis is $15,500, and she receives a distribution of $19,000. Corporate-level accounts
indicate a $6,000 balance in AAA and a $500 balance in AEP. How is Polly taxed on the
distribution? What is her stock basis after
In January 2017, Pelican, Inc., established an allowance for uncollectible accounts (bad debt
reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a
result of a client's bankruptcy, Pelican, Inc., decreased the allowance by $60,000 in November
2017. Pelican, Inc., deducted the $1
Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum
amount that Meredith can contribute if her AGI is $119,000?
In March 2017, Grackle, Inc., acquired used equipment for its business at a cost of $300,000.
The equipment is five-year class property for regular income tax purposes and for AMT
purposes. Grackle does not claim any available additional first-year depreciation. a. If Grackle
depreciates the equipment using the method
Dempsey Corporation is organized under Canadian law and has its corporate headquarters in
Montreal. This year, Dempsey sold $28 million of goods to customers who live in the United
States. However, Dempsey doesn't maintain any type of office in the United States.
Green Corporation hires six individuals on January 4, 2017, all of whom qualify for the work
opportunity credit. Three of these individuals receive wages of $8,500 during 2017, and each
individual works more than 400 hours during the year. The other three individuals each work 300
hours and receive wages of $5,000 duri
Rust Company is a real estate construction business with average annual gross receipts of $3
million. Rust uses the completed contract method on a particular contract that requires 16 months
to complete. The contract is for $500,000, with estimated costs of $300,000. At the end of 2016,
$180,000 of costs had been incur
A local government levies an annual real property tax on the personal residence located at 123
Maple Drive. This tax is assessed on a calendar-year basis, and the homeowner must pay the tax
before December 31. In November, Mr. and Mrs. J received the annual tax bill for $2,900. The
couple purchased the home on October
Burgundy, Inc., and Violet Gomez are equal partners in the calendar year BV LLC. Burgundy
uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual
guaranteed payment of $100,000 for use of capital contributed by Burgundy. BV's taxable
income (after deducting the payment to Burgun
For many years, Sophie has owned and operated several apartment buildings. In 2011, upon the
advice of her attorney, Sophie transferred the apartment buildings to a newly created corporation.
Her main reason for incorporating the business was to achieve the legal protection of limited
liability. Every year since 2011,
Tom and Gail form Owl Corporation with the following consideration: The installment note has
a face amount of $350,000 and was acquired last year from the sale of land held for investment
purposes (adjusted basis of $240,000). As to these transactions, provide the following
information: a. Tom's recognized gain or lo
Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S
corporation real estate company. He manages all aspects of the company's operations, and he is
the only person working at the company that holds a real estate broker's license. Sean works 12-
hour days and takes few days o
Rex, age 55, is an officer of Blue Company, which provides him with the following
nondiscriminatory fringe benefits in 2017. Determine the amounts that Rex must include in gross
income. â€¢ Hospitalization insurance premiums for Rex and his dependents. The cost of the
coverage for Rex is $2,900 per year, and the addit
Jane and Robert Brown are married and have eight children, all of whom are eligible to be
claimed as the couple's dependents. Robert earns $94,000 working as an accountant, and Jane
earns $38,000 as a teaching aide. Given their large family, they live in a frugal manner. The
Browns maintain a large garden and some frui
Dove Corporation, a calendar year C corporation, had the following information for 2017: Net
income per books (after-tax) ..................................... $386,250 Taxable
income .......................................................... 120,000 Federal income tax per
books .....................................
On March 2, 2017, the two 50% shareholders of a calendar year corporation decide to elect S
status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a
nonresident alien) on January 18, 2017. Identify any potential problems for Terry or the
corporation?
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820
Elk Avenue, Denver, CO 80202. David is a regional sales manager for Wren Industries, a
national wholesaler of plumbing and heating supplies, and Ella is a part-time dental hygienist for
the Smile For Me chain of dental clinic
In each of the following cases, determine if the United States has jurisdiction to tax Mr. KT. a.
Mr. KT is a U.S. citizen but has been a permanent resident of Belgium since 1993. b. Mr. KT is a
citizen and resident of Canada. He owns an apartment building in Buffalo, New York, that
generates $18,000 annual net renta
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners,
respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut
and Shoot, TX 77303. Premium's S election was made on January 15, 2010, its date of
incorporation. The following information was taken from the
Ms. SP, who lives in California, traveled to Oregon to purchase gold jewelry for $20,000.
California has a 7.5 percent sales and use tax, while Oregon has no sales and use tax. a. Compute
the use tax that Ms. SP owes to California on the jewelry purchased in Oregon. b. Compute the
use tax that Ms. SP owes to Californ
1. Walters, an individual, received the following in 2017: W-2

income .......................................................................... $10,000 Federal tax refund for
2016 .......................................................... 1,250 Scholarship stipend, in return for teaching
assistant duties performed
Candlewood LLC began its business on September 1; it uses a calendar tax and accounting year.
Candlewood incurred $6,500 in legal fees for drafting the LLC's operating agreement and $3,000
in accounting fees for tax advice of an organizational nature, for a total of $9,500 of
organizational costs. Candlewood also incu
Allie, who was an accounting major in college, is the controller of a medium size construction
corporation. She prepares the corporate tax return each year. Due to reporting a home
construction contract using the completed contract method, the corporation is subject to the AMT
in 2017. Allie files the 2017 corporate ta
Rosa's employer has instituted a flexible benefits program. Rosa will use the plan to pay for her
daughter's dental expenses and other medical expenses that are not covered by health insurance.
Rosa is in the 28% marginal tax bracket and estimates that the medical and dental expenses not
covered by health insurance wil
Why can people avoid paying an excise tax more readily than they can avoid
Pine-view Corporation placed an asset (three-year MACRS class life) costing $5,000 in service
on June 1, 2017. Complete the table below by providing the AMT adjustment and indicate
whether the adjustment increases or decreases taxable income.
US-Co, a domestic corporation, reports worldwide taxable income of $1.5 million, including a
$400,000 dividend from For-Co, a wholly owned foreign corporation. For-Co's undistributed E
& P totals $16 million, and it has paid $10 million of foreign income taxes attributable to these
earnings. All foreign income is in th
Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active
participants in employer qualified retirement plans. Their total AGI in 2017 is $189,000, and
they earn salaries of $87,000 and $95,000, respectively. What amount may Carri and Dane: a.
Contribute to regular IRAs? b. Ded
Tim is a real estate broker who specializes in commercial real estate. Although he usually buys
and sells on behalf of others, he also maintains a portfolio of property of his own. He holds this
property, mainly unimproved land, either as an investment or for sale to others. In early 2015,
Irene and Al contact Tim reg
Given the following information, determine the ACE adjustment for each year.
_____________________________ 2017 _________ 2018 __________ 2019 Unadjusted AMTI
$ ............... 800,000 ....... $2,000,000 ........ $1,500,000 Adjusted current earnings........
1,200,000 ...... 2,000,000 ............. 900,000
Egret Corporation, a calendar year C corporation, was formed on March 6, 2017, and opened for
business on July 1, 2017. After its formation but prior to opening for business, Egret incurred the
following expenditures: Accounting .......................................... $ 7,000
Advertising ..........................
Gull Corporation, a cash method, calendar year C corporation, was formed and began business
on November 1, 2017. Gull incurred the following expenses during its first year of operations
(November 1, 2017-December 31, 2017): Expenses of temporary directors and organizational
meetings ................... $21,000 Fee pa
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following
information and asks you to prepare Schedule M-1 for 2017: Net income per books (after-
tax) ....................................................... $257,950 Federal income tax per
books ...........................................
On January 1 of the current year, Rhondell Corporation holds accumulated E & P of $13,000.
Current E & P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan
are the sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth
sells all of her stock to Marshall. Rho
Company F operates in a jurisdiction that levies real property tax but no personal property tax.
This year, the company spent $6 million to add an exterior lighting system and security fences to
the parking lot adjacent to its corporate headquarters.
Included in Alice's regular taxable income and in her AMT base is a $300,000 capital gain on the
sale of stock she owned for three years. Alice is in the 35% tax bracket for regular income tax
purposes. In calculating her regular income tax liability, she uses the appropriate alternative tax
rate on net capital gain of
Harvey is a self-employed accountant with earned income from the business of $120,000 (after
the deduction for one-half of his self-employment tax). He has a profit sharing plan (e.g., defined
contribution Keogh plan). What is the maximum amount Harvey can contribute to his retirement
plan in 2017?
Roscoe contributes a personal-use asset, adjusted basis $15,000 and fair market value $28,000, to
a new business in which he is an owner. Determine Roscoe's recognized gain on the transfer, and
the basis of the asset to the business, if the new operation is a: a. Sole proprietorship. b.
Partnership, where Roscoe hold
Monroe County levies a tax on the value of real property located within the county. The tax
equals 3 percent of the property's assessed value up to $2 million plus 1 percent of the value in
excess of $2 million. a. Compute the tax on real property valued at $1.3 million. b. Compute the
tax on real property valued at
Business Q orders $500,000 of office furniture from Vendor V, which ships the furniture by rail
from its manufacturing facility in State V to Business Q's corporate headquarters in State Q.
State V imposes a 6.5 percent sales tax, while State Q imposes only a 4 percent sales tax.
In the current year, DYL Corporation earned taxable and tax-exempt interest from the following
investments. Investment ___________________________________ Interest Income 10-year
municipal bond (issued in 2009) ..................... $1,300 10-year private activity bond (issued in
2010) ................ 1,600 10-yea
Aqua, Inc., a calendar year corporation, has the following gross receipts and taxable income for
its first four tax years: Year ____________ Gross Receipts ___________ Taxable Income
2014 .................... $6,000,000 .................... $1,400,000 2015 .....................
7,000,000 ...................... 1,312
Pat, who is age 66 and single with no dependents, received a salary of $90,000 in 2017. She
earned interest income of $1,000, dividend income of $5,000, gambling winnings of $4,000, and
interest income from private activity bonds (issued in 2006) of $40,000. The dividends are not
qualified dividends. The following addi
Rosata Corporation has 2,000 shares of common stock outstanding. Howard owns 600 shares,
Howard's grandfather owns 300 shares, Howard's mother owns 300 shares, and Howard's son
owns 100 shares. In addition, Maroon Corporation owns 500 shares. Howard owns 70% of the
stock of Maroon. a. Applying the stock attribution ru
Balm, Inc., has a general business credit for 2017 of $90,000. Balm's regular income tax liability
before credits is $140,000, and its tentative AMT is $132,000. a. Calculate the amount of general
business credit Balm can use in 2017, and calculate its general business credit carry-back and
carry-forward, if any. b.
Blue Sky, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in
the United States. It also conducts some business in the European Union through various
branches. During the current year, Blue Sky reports taxable income of $700,000, of which
$500,000 is U.S.-sourced and $200,000 is fore
During 2017, Lincoln Company hires seven individuals who are certified to be members of a
qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of
$7,500 during the year. Determine the amount of Lincoln's work opportunity credit?
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status
for 2017. The company generated a $74,000 NOL in 2016 and another NOL of $43,000 in 2017.
Orange stock always is owned by the same four shareholders, each owning 25% of the stock.
Pete, one of the shareholders, holds a $6
For the last 11 years, Zhang Corporation has owned and operated four different trades or
businesses. Zhang also owns stock in several corporations that it purchased for investment
purposes. The stock of Zhang is held equally by Sultan, an individual, and by Turquoise
Corporation. Sultan and Turquoise each own 1,000 sh
Wozniacki and Wilcox form Jewel LLC, with each investor receiving a one-half interest in the
capital and profits of the LLC. Wozniacki receives his one-half interest as compensation for tax
planning services that he rendered prior to the formation of the LLC. Wilcox contributes $50,000
cash. The value of a onehalf capi
Company W produces circuit boards in a foreign country that imposes a 15 percent VAT. This
year, Company W manufactured 8.3 million boards at a $5 material cost per unit. Company W's
labor and overhead added $1 to the cost per unit. Company W sold the boards to various
customers for $7.50 per unit for a net profit of $
Global Corporation distributed property with an $850,000 fair market value and a $415,000
adjusted basis to Kang, one of its shareholders. The property was subject to a $230,000
mortgage, which Kang assumed. Global's accumulated E & P totals $3 million. What is the
amount of Kang's dividend income on the distribution?
When Bruno's basis in his interest in the MNO LLC is $150,000, he receives cash of $55,000, a
proportionate share of inventory, and land in a distribution that liquidates MNO and his interest
in the LLC. The inventory has a basis to the entity of $45,000 and a fair market value of $48,000.
The land's basis is $70,000,
In 2017, Miranda records net earnings from self-employment of $146,000. She reports no other
gross income. Determine the amount of Miranda's self-employment tax and her for AGI income
tax deduction.
In January of the current year, Wanda transferred machinery worth $200,000 (adjusted basis of
$30,000) to a controlled corporation, Oriole, Inc. The transfer qualified under Â§ 351. Wanda
had deducted $165,000 of depreciation on the machinery while it was used in her proprietorship.
Later during the year, Oriole sells
Company B, which has offices in six states, owns an airplane that company executives use to
travel from office to office. When the plane is not in use, it is stored in a hangar located in a
jurisdiction that doesn't levy a personal property tax on business tangibles. When the plane is in
use, it is stored on a tempora
The following information for 2017 relates to Sparrow Corporation, a calendar year, accrual
method taxpayer. Net income per books (after-tax) ......................................... $174,100 Federal
income tax per books ................................................ 86,600 Tax-exempt interest income ............
Upon losing his job as a plant manager in Quincy, Massachusetts, Anthony incurs $6,200 in job
search expenses. Having no success in finding new employment in the same type of work,
Anthony moves to Clearwater, Florida, in 2017 and begins a charter boat business. His expenses
in connection with the move are summarized b
Dora incurs the following research expenditures. In-house wages ................................... $60,000
In-house supplies .................................... 5,000 Payment to ABC, Inc., for research .............
80,000 a. Determine the amount of qualified research expenditures. b. Assuming that the base
amou
Vogel Corporation owns two subsidiaries. Song, located in State A, generated $500,000 taxable
income this year. Bird, located in State B, generated a $100,000 loss for the period. a. Determine
Song's taxable income in States A and B, assuming that the subsidiaries constitute independent
corporations under the tax law.
For the past 22 years, Mrs. O contributed part of her salary to a retirement plan sponsored by her
corporate employer. Under federal law, Mrs. O did not pay tax on the income she contributed.
She will, however, pay federal income tax on the distributions from the plan when she retires.
Mrs. O has resided in State A for
Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM
Products LLC. Amy is the managing member of the LLC (treated as a general partner) and is a
U.S. citizen. At the beginning of the current tax year, Amy's capital account has a balance of
$300,000, and the LLC has recourse debts o
TR Company conducts business exclusively in State V, which levies a 5 percent sales and use
tax on goods purchased or consumed in-state. This year, TR bought equipment in State B. The
cost of the equipment was $90,000, and TR paid $5,400 sales tax to State B. TR also bought
machinery in State D. The cost of the machine
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her
modified AGI is $64,000 in 2017. a. Calculate the amount Janet can contribute to a traditional
IRA and the amount she can deduct. b. Assume instead that Janet is a participant in a SIMPLE
IRA and that she elects to contribute
In January 2016, Iris Corporation purchased and placed in service a 1933 building that houses
retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing
the facility, Iris Corporation incurred $312,000 of renovation costs of the type that qualify for the
rehabilitation credit. These
The federal government levies a gift tax on the value of property that people give away during
their life and an estate tax on the value of property that people transfer at death. From the
government's perspective, which tax is more convenient?
In each of the following independent situations, determine the corporation's income tax liability.
Assume that all corporations use a calendar year for tax purposes and that the tax year involved
is 2017. ___________________________________________ Taxable Income Purple
Corporation ...................................
Rosa contributes $50,000 to Flip-Co in exchange for a 10% ownership interest. Rosa materially
participates in Flip-Co's business. Flip-Co incurs a loss of $900,000 for the current tax year.
Entity liabilities at the end of the year are $700,000. Of this amount, $150,000 is for recourse
debt, and $550,000 is for nonrec
Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days
in 2017. Mio's salary for 2017 is $190,000. What is Mio's foreign earned income exclusion? (In
your computation, round any division to four decimal places before converting to a percentage.
For example, .473938 would be rounded to
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a
corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000
from municipal bonds. (The municipality used the proceeds from the bond issue to construct a
public library.) Cardinal borrowed fund
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa
Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification
number 11-1111111). She also writes computer software programs for tax practitioners and has a
part-time tax practice. Beth is single and has n
For many years, Saul's sole proprietorship and his related Form 1040 have had a number of AMT
tax preferences and AMT adjustments. He has made the AMT calculation each year, but the
calculated amount always has been $0. Saul's regular taxable income and the AMT adjustments
and preferences for 2017 are the same as for l
One of your clients, Texas, Inc., is considering electing S status. Both of Texas's equal
shareholders paid $30,000 for their stock. As of the beginning of 2017, Texas's Subchapter C
NOL carry-forward is $110,000. Its taxable income projections for the next few years are as
follows. Will you counsel Texas to make the S
Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer).
Sparrow reported the following transactions during 2017, its second year of operation. Taxable
income ..................................................................... $330,000 Federal income tax liability
paid ..............
Falcon Corporation, a calendar year taxpayer, is a deepwater offshore drilling company that is
planning to sell drilling equipment that it no longer needs. The drilling equipment has an
adjusted basis of $400,000 ($700,000 - $300,000 depreciation) and a fair market value of
$500,000. The AMT adjusted basis of the equip
Mr. KW, age 72, has lived in Los Angeles his entire life. His net worth is estimated at $95
million. Mr. KW is considering renouncing his U.S. citizenship, selling his home in Los Angeles,
and permanently relocating to the Cayman Islands. The Cayman Islands impose no tax of any
sort on their residents.
Oak Corporation holds the following general business credit carryovers.

2013 ............................... $ 5,000 2014 ............................... 15,000 2015 .................................
6,000 2016 ............................... 19,000 Total carryovers ................ $45,000 If the general busines
Renee and Sanjeev Patel, who are married, reported taxable income of $273,000 for 2017. They
incurred positive AMT adjustments of $38,000, negative AMT adjustments of $14,000, and tax
preference items of $67,500. The couple itemizes their deductions. a. Compute the Patels' AMTI
for 2017. b. Compute their tentative mi
Siga, Inc., a calendar year Corporation, records the following gross receipts and taxable income
for 2015 through 2017. Year _________ Gross Receipts _________ Taxable Income
2015 ................. $4,200,000 .................. $ 900,000 2016 ................. 7,000,000 ....................
1,600,000 2017 .........
If the beginning balance in Swan, Inc.'s OAA is $6,700 and the following transactions occur,
what is Swan's ending OAA balance? Depreciation recapture income ................................ $
21,600 Payroll tax penalty ............................................... (4,200) Tax-exempt interest
income .............
Franco owns a 60% interest in the Dulera LLC. On December 31 of the current tax year, his
basis in the LLC interest is $128,000. The fair market value of the interest is $140,000. Dulera
then distributes to Franco $30,000 cash and equipment with an adjusted basis of $5,000 and a
fair market value of $8,000. a. Compute
Enders, Inc., a domestic corporation, reports $290,000 total taxable income for the year,
consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign
investment securities. Overseas tax authorities withheld $24,000 in income taxes on the
investment income. Enders's U.S. tax before the FTC
On November 1, 2007, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and
pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows: â€¢ Pet
Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone
number is (214) 555-2211; and its e-mail address is
Valentino is a patient in a nursing home for 45 days in 2017. While in the nursing home, he
incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000
from his long-term care insurance policy, which pays while he is in the facility. Assume that the
daily Federal statutory amount for Va
Henrietta transfers cash of $75,000 and equipment with a fair market value of $25,000 (basis to
her as a sole proprietor, $10,000) in exchange for a 40% profit and loss interest worth $100,000
in the XYZ Partnership. a. Compute Henrietta's realized and recognized gains from the asset
transfers. b. Compute Henrietta's
Elijah is employed as a full-time high school teacher. The school district for which he works
recently instituted a policy requiring all of its teachers to start working on a master's degree.
Pursuant to this new rule, Elijah spent most of the summer of 2017 taking graduate courses at an
out-of-town university. His exp
Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration: * Seth
receives $6,000 in cash in addition to the 30 shares. ** Pete receives $9,000 in cash in addition
to the 30 shares. Assume that the value of each share of Kingfisher stock is $3,000. As to these
transactions, provide the f
Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1,
2017. In connection with its formation, Cherry incurs organizational expenditures of $54,000.
Determine Cherry Corporation's deduction for organizational expenditures for 2017?
Eighteen months ago, BBB Company opened a manufacturing facility in County K. As an

incentive for BBB to locate within its jurisdiction, County K abated all local property taxes for
the first two years of operation. BBB recently announced that it will shut down the facility before
the end of the year.
Harrison Clothiersâ€™ stock currently sells for $20 a share. The stock just paid a dividend of
$1.00 a share (i.e., D0 = $1.00). The dividend is expected to grow at a constant rate of 10 percent
a year. What stock price is expected 1 year from now? What is the required rate of return on the
companyâ€™s stock?
Purple Corporation, a calendar year taxpayer, began operations in 2015. It reported the following
amounts for its first four tax years. Calculate Purple's positive and negative ACE adjustments for
each year. _________________ Unadjusted AMTI __________ ACE 2015 .................
$85,000,000 ............... $70,000,00
Mrs. DK, a resident of Rhode Island, traveled to Delaware to purchase an oil painting from a
local artist. The cost of the painting was $9,400. Rhode Island has a 7 percent sales and use tax,
while Delaware has no sales and use tax. a. How much Rhode Island use tax does Mrs. DK owe
on the purchase she made in Delaware
Acme Corporation was formed under the laws of State X and has its corporate headquarters in
that state. Acme operates a manufacturing plant in State Y and sells goods to customers in States
X, Y, and Z. All three states have a corporate income tax. This year, Acme's net profit from its
tristate operation was $14 millio
Adelyn has a tentative general business credit of $42,000 for the current year. Her net regular tax
liability before the general business credit is $107,000, and her tentative minimum tax is
$88,000. Compute Adelyn's allowable general business credit for the year?
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan
A calls for the expenditure of $50 million on a large-scale, integrated plant which will provide an
expected cash flow stream of $8 million per year for 20 years. Plan B calls for the expenditure of
$15 million to build a somew
Why is it true, in general, that a failure to adjust expected cash flows for expected inflation
biases the calculated NPV downward?
The Rodriguez Company is considering an average-risk investment in a mineral water spring
project that has a cost of $150,000. The project will produce 1,000 cases of mineral water per
year indefinitely. The current sales price is $138 per case, and the current cost per case (all
variable) is $105. The firm is taxed at
Singleton Supplies Corporation (SSC) manufactures medical products for hospitals, clinics, and
nursing homes. SSC may introduce a new type of X-ray scanner designed to identify certain
types of cancers in their early stages. There are a number of uncertainties about the proposed
project, but the following data are beli
In what sense is a reinvestment rate assumption embodied in the NPV, IRR, and MIRR methods?
What is the assumed reinvestment rate of each method?
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of
9 percent, paid annually. The tax rate is 40 percent. If the flotation cost is 2 percent of the issue
proceeds, what is the after-tax cost of debt?
Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a $1,000 par
value, a 10 percent coupon rate, and semiannual interest payments. a. Two years after the bonds
were issued, the going rate of interest on bonds such as these fell to 6 percent. At what price
would the bonds sell? b. Suppose that,
Define (a) simulation analysis, (b) scenario analysis, and (c) sensitivity analysis.
The Ulmer Uranium Company is deciding whether or not it should open a strip mine, the net cost
of which is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end
of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the
end of Year 2. a. Plot the
Suppose the School Company has this book value balance sheet: The current liabilities consist
entirely of notes payable to banks, and the interest rate on this debt is 10 percent, the same as the
rate on new bank loans. The long-term debt consists of 30,000 bonds, each of which has a par
vale of $1,000, carries an an
A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield
to maturity of 10.5883 percent. The bond pays coupons semiannually. What is the bondâ€™s
current yield?
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that
will produce a product it will need for the foreseeable future. Machine A costs $10 million but
realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be
replaced. Machine B costs $15 m
Wayne-Martin Electric Inc. (WME) has just developed a solar panel capable of generating 200
percent more electricity than any solar panel currently on the market. As a result, WME is
expected to experience a 15 percent annual growth rate for the next 5 years. By the end of 5
years, other firms will have developed compa
After discovering a new gold vein in the Colorado Mountains CTC Mining Corporation must
decide whether to mine the deposit. The most cost-effective method of mining gold is sulfuric
acid extraction, a process that results in environmental damage. To go ahead with the extraction,
CTC must spend $900,000 for new mining e
Explain how net operating working capital is recovered at the end of a projectâ€™s life, and why
it is included in a capital budgeting analysis.
Two investors are evaluating AT&Tâ€™s stock for possible purchase. They agree on the
expected value of D1 and also on the expected future dividend growth rate. Further, they agree
on the riskiness of the stock. However, one investor normally holds stocks for 2 years, while the
other normally holds stocks for 10 years.
A summary of the balance sheet of Travelers Inn Inc. (TII), a company which was formed by
merging a number of regional motel chains and which hopes to rival Holiday Inn on the national
scene, is shown in the table: Travelers Inn: December 31, 2004 (Millions of Dollars) These facts
are also given for TII: (1) Short-te
A bond trader purchased each of the following bonds at a yield to maturity of 8 percent.
Immediately after she purchased the bonds, interest rates fell to 7 percent. What is the percentage
change in the price of each bond after the decline in interest rates? Fill in the following table:
The Ewert Exploration Company is considering two mutually exclusive plans for extracting oil
on property for which it has mineral rights. Both plans call for the expenditure of $10,000,000 to
drill development wells. Under Plan A, all the oil will be extracted in 1 year, producing a cash
flow at t _ 1 of $12,000,000, w
Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend
of $2 yesterday. You expect the dividend to grow at the rate of 5 percent per year for the next 3
years, and, if you buy the stock, you plan to hold it for 3 years and then sell it. a. Find the
expected dividend for each of th
David Ortiz Motors has a target capital structure of 40 percent debt and 60 percent equity. The
yield to maturity on the companyâ€™s outstanding bonds is 9 percent, and the companyâ€™s
tax rate is 40 percent. Ortizâ€™s CFO has calculated the companyâ€™s WACC as 9.96 percent.
What is the companyâ€™s cost of equity capit
The Heymann Companyâ€™s bonds have 4 years remaining to maturity. Interest is paid
annually; the bonds have a $1,000 par value; and the coupon interest rate is 9 percent. a. What is
the yield to maturity at a current market price of (1) $829 or (2) $1,104? b. Would you pay $829
for one of these bonds if you thought tha
You are considering an investment in the common stock of Keller Corp. The stock is expected to
pay a dividend of $2 a share at the end of the year (D1 = $2.00). The stock has a beta equal to
0.9. The risk-free rate is 5.6 percent, and the market risk premium is 6 percent. The stockâ€™s
dividend is expected to grow at s
Describe the effect on a call optionâ€™s price caused by an increase in each of the following
factors: (1) Stock price, (2) Exercise price, (3) Time to expiration, (4) Risk-free rate, and (5)
Variance of stock return.
Tausig Technologies Corporation (TTC) has been growing at a rate of 20 percent per year in
recent years. This same growth rate is expected to last for another 2 years. a. If D0 = $1.60, rs =
10%, and gn = 6%, what is TTCâ€™s stock worth today? What is its expected dividend yield
and capital gains yield at this time? b.
Ezzell Corporation issued preferred stock with a stated dividend of 10 percent of par. Preferred
stock of this type currently yields 8 percent, and the par value is $100. Assume dividends are
paid annually. a. What is the value of Ezzellâ€™s preferred stock? b. Suppose interest rate levels
rise to the point where the
A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per
share (D1 = 4), which is expected to grow at some constant rate g throughout time. The
stockâ€™s required rate of return is 14 percent. If you are an analyst who believes in efficient
markets, what would be your forecast of
BPC has decided to evaluate the riskier project at a 12 percent rate and the less risky project at a
10 percent rate. a. What is the expected value of the annual net cash flows from each project?
What is the coefficient of variation (CV)? (Hint: =B = $5,798 and CVB = 0.76.) b. What is the
risk-adjusted NPV of each proj
Trivoli Industries plans to issue some $100 par preferred stock with an 11 percent dividend. The
stock is selling on the market for $97.00, and Trivoli must pay flotation costs of 5 percent of the
market price. What is the cost of the preferred stock for Trivoli?
A companyâ€™s 6 percent coupon rate, semiannual payment, $1,000 par value bond which
matures in 30 years sells at a price of $515.16. The companyâ€™s federal-plus state tax rate is
40 percent. What is the firmâ€™s component cost of debt for purposes of calculating the
WACC?
You have been asked by the president of your company to evaluate the proposed acquisition of a
new spectrometer for the firmâ€™s R&D department. The equipmentâ€™s basic price is
$70,000, and it would cost another $15,000 to modify it for special use by your firm. The
spectrometer, which falls into the MACRS 3-year clas
Why do options sell at prices higher than their exercise values?
The risk-free rate of return, rRF, is 11 percent; the required rate of return on the market, rM, 14
percent; and Upton Companyâ€™s stock has a beta coefficient of 1.5. a. If the dividend expected
during the coming year, D1, is $2.25, and if g = a constant 5%, at what price should Uptonâ€™s
stock sell? b. Now, suppose t
Six years ago, The Singleton Company sold a 20-year bond issue with a 14 percent annual
coupon rate and a 9 percent call premium. Today, Singleton called the bonds. The bonds
originally were sold at their face value of $1,000. Compute the realized rate of return for
investors who purchased the bonds when they were issu
Sidman Productsâ€™ stock is currently selling for $60 a share. The firm is expected to earn
$5.40 per share this year and to pay a year-end dividend of $3.60. a. If investors require a 9
percent return, what rate of growth must be expected for Sidman? b. If Sidman reinvests earnings
in projects with average returns equ
An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of
$1,000, and has a yield to maturity equal to 9.6 percent. One bond, Bond C, pays an annual
coupon of 10 percent; the other bond, Bond Z, is a zero coupon bond. a. Assuming that the yield
to maturity of each bond remains at 9.6
Calculate the after-tax cost of debt under each of the following conditions: a. Interest rate, 13
percent; tax rate, 0 percent. b. Interest rate, 13 percent; tax rate, 20 percent. c. Interest rate, 13
percent; tax rate, 35 percent.
You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of
$1.07 $1.1449, and $1.2250 in Years 1, 2, and 3, respectively, and you expect to sell it at a price
of $26.22 at the end of 3 years. a. Calculate the growth rate in dividends. b. Calculate the
expected dividend yield. c. Assum
A 10-year, 12 percent semiannual coupon bond, with a par value of $1,000, may be called in 4
years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been
issued.) a. What is the bondâ€™s yield to maturity? b. What is the bondâ€™s current yield? c.
What is the bondâ€™s capital gain or
In what sense is the WACC an average cost A marginal cost?
How would each of the following affect a firmâ€™s cost of debt, rd(1 = T); its cost of equity, rs;
and its weighted average cost of capital, WACC? Indicate by a plus (+) a minus (_), or a zero (0)
if the factor would raise lower, or have an indeterminate effect on the item in question. Assume
other things are held cons
Project K has a cost of $52,125, its expected net cash inflows are $12,000 per year for 8 years,
and its cost of capital is 12 percent. (Hint: Begin by constructing a time line.) a. What is the
projectâ€™s payback period (to the closest year)? b. What is the projectâ€™s discounted
payback period? c. What is the project
Shao Industries is considering a proposed project for its capital budget. The company estimates
that the projectâ€™s NPV is $12 million. This estimate assumes that the economy and market
conditions will be average over the next few years. The companyâ€™s CFO, however, forecasts
that there is only a 50 percent chance th
Define each of the following terms: a. Weighted average cost of capital, WACC; after-tax cost of
debt, rd (1 = T) b. Cost of preferred stock, rps; cost of common equity or cost of common stock,
rs c. Target capital structure d. Flotation cost, F; cost of new external common equity, re
How is a project classification scheme (for example, replacement, expansion into new markets,
and so forth) used in the capital budgeting process?
The earnings, dividends, and stock price of Carpet to Technologies Inc. are expected to grow at 7
percent per year in the future. Carpettoâ€™s common stock sells for $23 per share, its last
dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year.
a. Using the discounted cash flow
The current price of a stock is $20. In 1 year, the price will be either $26 or $16. The annual risk-
free rate is 5 percent. Find the price of a call option on the stock that has an exercise price of $21
and that expires in 1 year. (Hint: Use daily compounding.)
A company currently pays a dividend of $2 per share, D0 = 2. It is estimated that the

companyâ€™s dividend will grow at a rate of 20 percent per year for the next 2 years, then the
dividend will grow at a constant rate of 7 percent thereafter. The companyâ€™s stock has a beta
equal to 1.2, the risk-free rate is 7.5 per
Assume you have been given the following information on Purcell Industries: Current stock
price = $15 Exercise price of option = $15 Time to maturity of option = 6 months Risk-free rate
= 6% Variance of stock return = 0.12 d1 = 0.24495 d2 _ 0.00000 N(d1) _ 0.59675 N (d2) =
0.50000 Using the Black-Scholes Option P
Define each of the following terms: a. Cash flow; accounting income b. Incremental cash flow;
sunk cost; opportunity cost c. Net operating working capital changes; salvage value d. Real rate
of return, rr, versus nominal rate of return, rn e. Sensitivity analysis; scenario analysis; Monte
Carlo simulation analysis f. R
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest
plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S a maturity of 1 year. a.
What will be the value of each of these bonds when the going rate of interest is (1) 5 percent, (2)
8 percent, and (3) 12 percent? Assu
Martell Mining Companyâ€™s ore reserves are being depleted, so its sales are falling. Also, its
pit is getting deeper each year, so its costs are rising. As a result, the companyâ€™s earnings and
dividends are declining at the constant rate of 5 percent per year. If D0 = $5 and rs = 15%, what
is the value of Martell Mi
The current price of a stock is $15. In 6 months, the price will be either $18 or $13. The annual
risk-free rate is 6 percent. Find the price of a call option on the stock that has an exercise price of
$14 and that expires in 6 months.
Explain why, if two mutually exclusive projects are being compared, the short-term project
might have the higher ranking under the NPV criterion if the cost of capital is high, but the long-
term project might be deemed better if the cost of capital is low. Would changes in the cost of
capital ever cause a change in the
You just purchased a bond which matures in 5 years. The bond has a face value of $1,000, and
has an 8 percent annual coupon. The bond has a current yield of 8.21 percent. What is the
bondâ€™s yield to maturity?
A bond that pays interest forever and has no maturity date is a perpetual bond. In what respect is
a perpetual bond similar to a no-growth common stock, and to a share of preferred stock?
Rework Problem 9-3, assuming that new stock will be issued. The stock will be issued for $30
and the flotation cost is 10 percent of the issue proceeds. The expected dividend and growth
remain at $3.00 per share and 5 percent, respectively.
Define each of the following terms: a. Option; call option; put option b. Exercise value; strike
price c. Black-Scholes Option Pricing Model
Suppose a firm estimates its cost of capital for the coming year to be 10 percent. What might be
reasonable costs of capital for average-risk, high-risk, and low-risk projects?
Fee Founders has preferred stock outstanding which pays a dividend of $5 at the end of each
year. The preferred stock sells for $60 a share. What is the preferred stockâ€™s required rate of
return?
The Campbell Company is evaluating the proposed acquisition of a new milling machine. The
machineâ€™s base price is $108,000, and it would cost another $12,500 to modify it for special
use by your firm. The machine falls into the MACRS 3-year class, and it would be sold after 3
years for $65,000. The machine would requ
Investors require a 15 percent rate of return on Levine Companyâ€™s stock (rs =15%). a. What
will be Levineâ€™s stock value if the previous dividend was D0 = $2 and if investors expect
dividends to grow at a constant compound annual rate of (1) = percent, (2) 0 percent, (3) 5
percent, and (4) 10 percent? b. Using data
Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per
year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per
year for 5 years. Calculate the two projectsâ€™ NPVs, IRRs, MIRRs, and PIs, assuming a cost
of capital of 12 percent. Which project
Operating cash flows, rather than accounting profits, are listed in Table 11-4.What is the basis
for this emphasis on cash flows as opposed to net income?
The Yoran Yacht Company (YYC), a prominent sailboat builder in Newport, may design a new
30-foot sailboat based on the â€œwingedâ€ keels first introduced on the 12-meter yachts that
raced for the Americaâ€™s Cup. First, YYC would have to invest $10,000 at t _ 0 for the design
and model tank testing of the new boat. YY
Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will
cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of
10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao
plans to serve the route fo
Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year (i.e., D1 =
$0.50). The dividend is expected to grow at a constant rate of 7 percent a year. The required rate
of return on the stock, rs, is 15 percent. What is the value per share of the companyâ€™s stock?
Nungesser Corporation has issued bonds that have a 9 percent coupon rate, payable
semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity
of 8.5 percent. What is the price of the bonds?
Assume that the average firm in your companyâ€™s industry is expected to grow at a constant
rate of 6 percent and its dividend yield is 7 percent. Your company is about as risky as the
average firm in the industry, but it has just successfully completed some R&D work that leads
you to expect that its earnings and divid
Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity
costs and externalities should be included.
Heath Foodsâ€™ bonds have 7 years remaining to maturity. The bonds have a face value of
$1,000 and a yield to maturity of 8 percent. They pay interest annually and have a 9 percent
coupon rate. What is their current yield?
Javits & Sonsâ€™ common stock is currently trading at $30 a share. The stock is expected to
pay a dividend of $3.00 a share at the end of the year (D1 = $3.00), and the dividend is expected
to grow at a constant rate of 5 percent a year. What is the cost of common equity?
Davis Industries must choose between a gas-powered and an electric-powered forklift truck for
moving materials in its factory. Since both forklifts perform the same function, the firm will
choose only one. (They are mutually exclusive investments.) The electric-powered truck will
cost more, but it will be less expensiv
What will be the nominal rate of return on a preferred stock with a $100 par value, a stated
dividend of 8 percent of par, and a current market price of? (a) $60, (b) $80, (c) $100, and (d)
$140?
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting
machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year
expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and
Machine 360-6, which has a cost of
Your division is considering two investment projects, each of which requires an up-front
expenditure of $25 million. You estimate that the cost of capital is 10 percent and that the
investments will produce the following after-tax cash flows (in millions of dollars): a. What is
the regular payback period for each of
The exercise price on one of Flanagan Companyâ€™s options is $15, its exercise value is $22,
and its premium is $5. What are the optionâ€™s market value and the price of the stock?
The current price of a stock is $33, and the annual risk-free rate is 6 percent. A call option with
an exercise price of $32 and 1 year until expiration has a current value of $6.56. What is the
value of a put option written on the stock with the same exercise price and expiration date as the
call option?
On January 1, the total market value of the Tysseland Company was $60 million. During the
year, the company plans to raise and invest $30 million in new projects. The firmâ€™s present
market value capital structure, shown below, is considered to be optimal. Assume that there is no
short-term debt. Debt $30,000,000 C
Explain why the NPV of a relatively long-term project, defined as one for which a high
percentage of its cash flows are expected in the distant future, is more sensitive to changes in the
cost of capital than is the NPV of a short-term project.
Define each of the following terms: a. Capital budgeting; regular payback period; discounted
payback period b. Independent projects; mutually exclusive projects c. DCF techniques; net
present value (NPV) method; internal rate of return (IRR) method d. Modified internal rate of
return (MIRR) method; profitability index
Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings,
hence it does not pay any dividends. However, investors expect Microtech to begin paying
dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow
rapidlyâ€”at a rate of 50 percent per
Suppose a firm is considering two mutually exclusive projects. One has a life of 6 years and the
other a life of 10 years. Would the failure to employ some type of replacement chain analysis
bias an NPV analysis against one of the projects? Explain.
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead
pulley system, in this yearâ€™s capital budget. The projects are independent. The cash outlay for
the truck is $17,100, and that for the pulley system is $22,430. The firmâ€™s cost of capital is
14 percent. After-tax cash flow

Use the Black-Scholes model to find the price for a call option with the following inputs: (1)
current stock price is $30, (2) exercise price is $35, (3) time to expiration is 4 months, (4)
annualized risk-free rate is 5%, and (5) variance of stock return is 0.25.
Your division is considering two investment projects, each of which requires an up-front
expenditure of $15 million. You estimate that the investments will produce the following net
cash flows: What are the two projectsâ€™ net present values, assuming the cost of capital is 10
percent 5 percent 15 percent?
Johnson Industries is considering an expansion project. The necessary equipment could be

purchased for $9 million, and the project would also require an initial $3 million investment in
net operating working capital. The companyâ€™s tax rate is 40 percent. What is the projectâ€™s
initial investment outlay?
War Corporation just paid a dividend of $1.50 a share (i.e., D0 = $1.50). The dividend is
expected to grow 5 percent a year for the next 3 years, and then 10 percent a year thereafter.
What is the expected dividend per share for each of the next 5 years?
Nixon Communications is trying to estimate the first-year operating cash flow (at t = 1) for a
proposed project. The financial staff has collected the following information: Projected sales $10
million Operating costs (not including depreciation) $7 million Depreciation $2 million Interest
Lloyd Corporationâ€™s 14 percent coupon rate, semiannual payment, $1,000 par value bonds,
that mature in 30 years, are callable 5 years from now at a price of $1,050. The bonds sell at a
price of $1,353.54, and the yield curve is flat. Assuming that interest rates in the economy are
expected to remain at their current
Cummings Products Company is considering two mutually exclusive investments. The

projectsâ€™ expected net cash flows are as follows: a. Construct NPV profiles for Projects A
and B. b. What is each projectâ€™s IRR? c. If you were told that each projectâ€™s cost of
capital was 10 percent, which project should be select
The Bouchard Companyâ€™s current EPS is $6.50. It was $4.42 5 years ago. The company pays
out 40 percent of its earnings as dividends, and the stock sells for $36. a. Calculate the past
growth rate in earnings. (Hint: This is a 5-year growth period.) b. Calculate the next expected
dividend per share, D1. (D0 _ 0.4($6.5
Define each of the following terms: a. Proxy; proxy fight; takeover; preemptive right; classified
stock; foundersâ€™ shares b. Closely held corporation; publicly owned corporation c. Secondary
market; primary market; going public; initial public offering (IPO) d. Intrinsic value (Ë†P0);
market price (P0) e. Required ra
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost
$22,500, and it is expected to generate net after-tax operating cash flows, including depreciation,
of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax
adjustments for the truck are give
Carter Air Lines is now in the terminal year of a project. The equipment originally cost $20
million, of which 80 percent has been depreciated. Carter can sell the used equipment today to
another airline for $5 million, and its tax rate is 40 percent. What is the equipmentâ€™s after-tax
net salvage value?
What should you do if an interview question is vague or unclear?
The Aubey Coffee Company is evaluating the within-plant distribution system for its new
roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high
initial cost, but low annual operating costs, and (2) several forklift trucks, which cost less, but
have considerably higher operating
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash
flows are shown below: The projects are equally risky, and their cost of capital is 12 percent.
You must make a recommendation, and you must base it on the modified IRR (MIRR). What is
the MIRR of the better project?
Distinguish between beta (or market) risk, within-firm (or corporate) risk, and stand-alone risk
for a potential project. Of the three measures, which is theoretically the most relevant, and why?
Tunney Industries can issue perpetual preferred stock at a price of $50 a share. The issue is
expected to pay a constant annual dividend of $3.80 a share. The flotation cost on the issue is
estimated to be 5 percent. What is the companyâ€™s cost of preferred stock, rps?
List five sources of career information.
You are a consultant who has been hired to improve the effectiveness of corporate trainers.
These trainers frequently make presentations to employees on topics such as conflict
management, teamwork, time management, problem solving, performance appraisals, and
employment interviewing. Your goal is to teach these traine
What should you remember to do at the close of an interview?
How is a resume different from a company employment application?

What is groupthink?
What is whistleblowing? How can one engage in it legally and ethically?
Communication Skills: CompUSA Suddenly Needs Writers â€œOne misspelled word and
customers begin to doubt the validity of the information they are getting,â€ warns Mary Jo
Lichtenberg. Sheâ€™s director of training, quality, and career development at CompUSA, in
Plano, Texas. One of her big problems is training service
Why are transparencies a favorite visual aid?
List five â€œsoftâ€ skills requested by employers, and explain why these skills are important in
todayâ€™s workplace.
How might presentations before international or cross-cultural audiences be altered to be most

effective?
In regard to hiring, conventional wisdom holds that itâ€™s all about whom you know. How can
job candidates find an insider to refer them for a job opening?
Describe four interpersonal communication barriers that can create misunderstanding.
Which five issues should be resolved before a team can collaborate productively?
Why are team decisions based on consensus generally better than decisions reached by majority
rule?
Compare and contrast positive and negative team behavior.
What are the four phases of team development? Is it best to move through the stages quickly?
Why or why not?
What changes must be made in a typical rÃ©sumÃ© to make it effective for computer
scanning?
What are the purposes of a job interview for a candidate?
To optimize your resume for todayâ€™s technologies, how many versions of your resume
should you expect to make? What are they?

Small-Group Presentation: Getting to Know Each Other Many business organizations today use
teams to accomplish their goals. To help you develop speaking, listening, and teamwork skills,
your instructor may assign team projects. One of the first jobs in any team is selecting members
and becoming acquainted. Your Task.
Has searching for a job online replaced traditional job-search methods? Explain.
Describe a summary of qualifications, and explain why it is increasingly popular on resumes.
Why are writing skills more important than ever in todayâ€™s workplace?
If you are asked an illegal interview question, why is it important to first assess the intentions of
the interviewer?
Where are the jobs? Even though you may not be in the market at the moment, become familiar
with the kinds of available positions because job awareness should become an important part of
your education. Your Task. Clip or print a job advertisement or announcement from (a) The
classified section of a newspaper, (b)
How has the Internet changed job searching for individuals and recruiters? Has the change had a
positive or a negative effect? Why?
What are the three main functions of organizational communication?
Compare formal and informal channels of communication within organizations. Which is more
valuable to employees?
Using the Web, where should job candidates look in addition to searching the big job board
sites?
Document for Analysis: Barriers to Communication The following memo is from an exasperated
manager to her staff. Obviously, this manager has no secretary to clean up her writing. Your
Task. Comment on the memoâ€™s effectiveness, tone, and potential barriers to communication.
Your instructor may ask you to revise th
Does White-Collar Crime Pay? Youâ€™ve been asked to participate in a panel discussing white-
collar crime. Some people argue that executives seldom serve prison time for white-collar crime.
You think that high-profile people have actually been sentenced to prison. Your Task. Using the
Web or a campus database, look fo
How is the 6-x-6 rule applied in preparing bulleted points?

What are the purposes of a job interview for the employer?
How should the job-search process begin? By writing a resume?
When you are faced with a difficult ethical decision, what questions should you ask yourself?
What should you do if asked a salary question early in an interview?
What is a chronological resume, and what are its advantages and disadvantages?
Researching Fortune List Information Your Task. Using an electronic database, perform a search
to learn how Fortune magazine determines which companies make its annual lists. Research the
following lists. Then organize and present a five- to ten-minute informative talk to your class. a.
Fortune 500 b. Global 500 c. 10
Many people know amazingly little about the work done in various occupations and the training
requirements. Your Task. Use the online Occupational Outlook Handbook at www.bls.gov/oco,
prepared by the Bureau of Labor Statistics, to learn more about an occupation of your choice.
Find the description of a position for w
Critics of PowerPoint claim that flashy graphics, sound effects, and animation often conceal thin
content. Consider, for example, the findings regarding the space shuttle Challenger accident that
killed seven astronauts. Report authors charged that NASA scientists had used PowerPoint
presentations to make it look as th
Miscommunication in Organizations: Understanding the Boss Sales representative Tim Perez

was underperforming. However, the vice president was unaware of this. At a busy sales
reception where all of the sales reps were milling about, the CEO pulled the vice president aside
and said, â€œWhy is Perez still a sales rep?â€
What electronic tools enable workers to complete tasks in remote locations? Why are
communication skills increasingly important?
A terrific way to get ideas for improving your rÃ©sumÃ© is seeing how other students have
developed their rÃ©sumÃ©s. Your Task. Bring your completed rÃ©sumÃ© to class. Attach a
plain sheet with your name at the top. In small groups exchange your rÃ©sumÃ©s. Each
reviewer should provide at least two supportive comments
Differing Frames of Reference: E-Mail Cross-Cultural Misunderstanding A cultural

misunderstanding nearly derailed an Indo-Japanese bridge-building project. An Indian firm sent
a detailed list of technical-questions to its Japanese counterpart. The Indian engineers panicked
when they received no reply. They wondered wha
Developing Critical Thinking and Consumer Skills: A Victim of Identity Theft Wants Your Help
Your friend Lisa Williams, whose banking experience consisted mainly of ATM use, knew
something was wrong when a Citibank debt consolidation representative called her. Lisa was
astounded to learn that she had an overdue credit
How can a speaker make the most effective use of visual aids?
What is a customized resume, and why should a job seeker have one?
Learn about the procedure for posting rÃ©sumÃ©s at job boards on the Web. Your Task.
Prepare a list of at least three Web sites where you could post your rÃ©sumÃ©. Describe the
procedure involved in posting a rÃ©sumÃ© and the advantages for each site.
Ethical Issue: Job candidate Karen accepts a position with Company A. One week later she
receives a better offer from Company B. She wants very much to accept it. What should she do?
What is a functional resume, and what are its advantages and disadvantages?
The following cover letter accompanies Brenda Trudellâ€™s resume Your Task. Analyze each
section of the following cover letter written by Brenda and list its weaknesses. Your instructor
may ask you to revise this letter before showing you an improved version. Dear Human
Resources Director: I would like you to conside
Your dream has come true: you have just been offered an excellent position. Although you
accepted the position on the phone, you want to send a formal acceptance letter. Your Task.
Write a job acceptance letter to an employer of your choice. Include the specific job title, your
starting date, and details about your c
How can you avoid telephone tag?
What delivery method is most effective for speakers?
Why should speakers deliver the first sentence from memory?
Who are knowledge workers? Why are they hired?
What should a job candidate learn about a company before going to a job interview?
Who is generally involved and what information is typically carried in downward, upward, and
horizontal communication channels?
What is the difference between a situational and a behavioral question?
Some job candidates think that applying for unsolicited jobs can be more fruitful than applying
for advertised openings. Discuss the advantages and disadvantages of letters that
â€œprospectâ€ for jobs.
How can speakers prevent multimedia presentation software from stealing their thunder?
When asked about his previous salary in a job interview, Jeremy boosts his salary a bit. He
reasons that he was about to get a raise, and he also felt that he deserved to be paid more than he
was actually earning. Even his supervisor said that he was worth more than his salary. Is Jeremy
justified in inflating his prev
What should be included in a thank-you note after an interview?
Critics complain that e-mail is reducing the amount of face-to-face communication at work and
this is bad for business. Do you agree or disagree?
Online Communication Skills Assessment: How Do You Rate? This course can help you
dramatically improve your business communication skills. How much do you need to improve?
This assessment exercise enables you to evaluate your skills with specific standards in four
critical communication skill areas: writing, reading, s
Workplace Writing: Separating Myths From Facts Todayâ€™s knowledge workers are doing
more writing on the job than ever before. Flattened management hierarchies, heightened global
competition, expanded team-based management, and heavy reliance on e-mail have all
contributed to more written messages. Your Task. In team
Communication Process: Avoiding Misunderstanding Communication is not successful unless

the receiver understands the message as the sender meant it. Your Task. Analyze the following
examples of communication failures. What went wrong? a. The editor of Salt Lake Cityâ€™s
Deseret News told his staff to â€œchange the pi
Improving the Design and Content of PowerPoint Slides Your Task. Identify ways to improve
the design and content of the three slides presented in Figure 14.9. Classify your comments
under the following categories: (a) Color choices, (b) Font choice including style and point size,
(c) 6-x-6 rule, (d) Listings in pa
In addition to technical skills, what traits and capabilities are employers seeking?
One effective way to improve your writing skills is to critique and edit the rÃ©sumÃ© of
someone else. Your Task. Analyze the following poorly organized rÃ©sumÃ©. Discuss its
weaknesses. Your instructor may ask you to revise sections of this rÃ©sumÃ© before showing
you an improved version. RÃ©sumÃ© of Brenda Ann Trud
What information goes in the body of a cover letter?
Is it normal to be nervous about an employment interview, and what can be done to overcome
this fear?
What are seven goals of ethical business communicators?
What kinds of questions should you ask during an interview?
Discuss effective techniques for reducing stage fright.
What are the three purposes of a cover letter?
How are the rules of ethical behavior that govern businesses different from those that govern
your personal behavior?
What can you do to improve the first impression you make at an interview?
Are communication skills inborn or must they be learned?
Not long ago employment agencies charged applicants 5 percent of their annual salaries to find
jobs. Most agencies have quit this unethical practice, but unscrupulous firms still prey on
vulnerable job seekers. Some career-advisory firms claim to be legitimate, but they make puffed-
up promises and charge inflated feesâ
What is a screening interview, and why is it so important?
Name specific advantages and disadvantages of multimedia presentation software.
If you are offered a position, why is it important to write an acceptance letter, and what should it
include?
Suppose your superior asked you to alter year-end financial data, and you knew that if you
didnâ€™t you might lose your job. What would you do if it were a small amount? A large
amount?
The program chair for the campus business club has asked you to present a talk to the group
about consumer credit. He saw a newspaper article saying that only 10 percent of Americans
know their credit scores. Many consumers, including students, have dangerous misconceptions
about their scores. Not knowing your score co
Describe the five steps in the process of communication.
What is extemporaneous speaking, and what makes it the best delivery method for business
presentations?
What is the best way to answer the question, Tell me about yourself?
List five tips for writing an effective career objective on your resume.
Do you think behavioral questions (such as, Tell me about a business problem you have had and
how you solved it) are more effective than traditional questions (such as, Tell me what you are
good at)? Why?
How can you send positive nonverbal messages during an interview?
Why should you, as a business student and communicator, strive to improve your
communication skills; and why is it difficult or impossible to do so on your own?
Recall a time when you experienced a problem as a result of poor communication. What were
the causes of and possible remedies for the problem?
Compare the advantages and disadvantages of oral, face-to-face communication.
When you send a cover letter within an e-mail message, what changes should you make to the
format of the letter?
Take the consumer challenge. You currently subscribe to Netflix, which allows you to rent 3
movies per week by mail; you can keep out 1 movie at a time, and the monthly charge is $16.99.
Blockbuster now makes you the following offer: You can rent 3 movies per week by mail, plus
you can take out 5 movies per month from

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