Monopoly Markets and Concentrated Markets Assignment

Assignment Task

Questions

Which of the following is FALSE about liabilities

• Group of answer choices
• A current liability is due within one year of the report date for the financial statements.
• Bonuses due to managers will be recorded as an accrued liability
• If a loan from a bank for $5 million has equal payments of $1 million due in years 1,2,3,4, and 5; record the $5 million as a long-term (noncurrent) liability.
• An example of deferred revenues is the payment for a one year subscription to a magazine publisher.

Bond basics. Match the statement on the left with the correct answer on the right.

• Group of answer choices A bond with a face amount of $100 million and a coupon rate of 4% is issued for $102 million.
• The yield to maturity at issuance is 4.2% and the coupon rate is 4.0%. The face amount is $100 million. how much would be paid to bondholders on an annual interest payment?
• The company issues a bond with a face amount of $100 million on January 2. On February 15, the bonds are trading at $102 million. What is the impact on the financial statements of the company in February?
• The company has $100 million face value bonds that were issued 4 years ago. There is a balance in the discount on bonds in the amount of -$1 million. If the company can buy all the bonds on the open market at $98 million, is there a gain or loss?

Which of the following is NOT TRUE about bonds?

• The interest rate and price are set by the investment banker
• Buyers of the bonds are usually institutional investors
• The interest rate on bonds are usually lower than an equivalent loan from a bank
• The bond market is a better source for large loans than banks, since banks would be uncomfortable as the only lender on a very large loan (e.g. $1 billion)
• When a company issues a zero coupon bond with a 5 year term, no payments are due at all until the maturity date of the bond.

The company wants to build a major new factory. A leasing company offers the finance the $ 1 million of equipment in the factory and the company would make monthly payments of $18,000 per month. Which of the following is False?

• The company does not have to include this as a liability in the balance sheet since it is rental payments.
• The lease agreement would show the lessor (the financing company) as the owner of the equipment.
• If the company defaults on the lease payments, the leasing company can repossess all the equipment from the factory
• Leases are an alternative to financing through a loan or bond

Which of these is TRUE about liabilities?

• If it is possible that a lawsuit will be ruled against a company, the company must record it as a liability
• If a company sells a product for $100, including a one year warranty for repairs, the company cannot record the entire $100 as revenues on the day of the sale.
• If a company is in a lawsuit with a remote chance of a loss,, the company does not record a liability, but must disclose the lawsuit in the Notes to the Financial Statements
• If there is a safety recall on a company's products today, it must record the expenses as the actual repairs are made rather than recording an estimate now.

Match the comment on the left with the correct answer on the right.

• The maximum number of shares the company may issue without any additional legal actions.
• The number of shares that are held by investors outside of the company (i.e. not treasury shares)
• The value per share in the filing of the corporate charter at the time of incorporation

Match the comment on the left with the answer on the right.

• The value of shares received by the company for selling shares in its company
• NASDAQ and NYSE are examples of these type of markets where investors may sell their common stock to others
• In the case of a liquidation of the company, when will common shareholders receive money?
• This different class of stock often has dividends, conversion rights, but usually no voting rights.

Which of the following is FALSE regarding dividends?

• Cash dividends are recorded as a reduction in retained earnings
• Small stock dividends (eg. 2% of outstanding shares) are recorded as reductions in retained earnings
• The board of directors has the right to suspend dividends to common shareholders (not declare any dividends), even if it has the cash to make payments.
• In most cases, if a company does not pay a preferred dividend to its preferred shareholders, they cannot pay any dividends to common shareholders until that "skipped" dividend is paid to the preferred shareholders
• All of the above are true
• All of the above are false

Compute Earnings Per Share (EPS) and Diluted Earnings Per Share for a company with the following information

• The company had preferred and common shares outstanding
• The company has net income of $350 million
• Preferred dividends total $10 million
• Average outstanding common shares = 100 million shares
• Average outstanding preferred shares = 10 million shares
• warrants on common shares = 5 million shares

Group of answer choices

Compute earnings per share

Compute diluted earnings per share

Which is the TRUE about Accumulated Other Comprehensive Income?

• Group of answer choices
• These items are included in the income statement
• These items are not included in net income, but are included in shareholders' equity
• It includes all foreign currency gains and losses
• It is included in diluted earnings per share calculations

The firm's goal is to _________________________

• Group of answer choices
• maximize profit per unit
• cut costs regardless of the impact on revenue
• maximize profit
• increasing sales regardless of costs

When marginal revenue is GREATER THAN marginal cost then it makes sense for the firms to _________

• Group of answer choices
• stop production of their products.
• produce more quantity of their products
• produce less quantity of their products.

One of the variables to determine how to maximize profit is the price charged to customers. In a perfectly competitive market, the ______________________

• Group of answer choices
• marginal revenue is greater than average revenue
• price is equal to total revenue
• price is equal to marginal revenue which is also equal to average revenue
• marginal revenue is less than average revenue

Under the perfectly competitive market structure, the goods being sold by the individual firms are considered to be ________________________________.

• Group of answer choices
• different
• homogeneous (identical)

Under the perfectly competitive market structure, individual firms have the incentive to invest in technology to gain an advantage over competitors.

• Group of answer choices
• True
• False

According to the Coal India video below, what is holding up the construction of a new railway line which is preventing the shipment of more coal to its customers?

Hint: I mentioned how this leads to more inefficiency. It's mentioned around the 40 second mark in the video.

*****The video below has close captioning. To access the close captioning please click on the "CC" icon on the video.*****

Group of answer choices

• lower prices
• lower taxes
• higher taxes
• higher prices
• union workers
• red tape (bureaucracy)

According to the film, Coal India has always been profitable.

• True
• False

This question is from a conceptual point of view. A monopoly firm, acting like a lazy monopolist with no competition, has an absolute incentive to lower its production process costs and hence will invest in more technology.

• True
• False

A monopoly firm is different from a competitive firm in that ________________________________________.

• a competitive firm has a U-shaped average cost curve while a monopolist does not.
• there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product.
• a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic.
• a monopolist can influence market price while a competitive firm cannot.

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