1. Anders Company provided the following information:

Turnover……………………………………..1.4

Average operating assets…..$120,000

Operating income…………………$6,720

What is margin?

a. 5.6%

b. 11.2%

c. 8%

d. Cannot be determined from the above information.

2. Refer to 10.22. If the imputed interest rate is 6%, what is Anders Company residual income for the year?

a. ($480)

b. $480

c. $2,400

d. ($2,400)

3. A company had WACC (weighted average cost of capital) equal to 8.96% If the company pays off mortgage bonds with an interest rate of 4% and issues an equal amount of new stock consideredto be relatively risky by the market, which of the following is true?

a. residual income will increase.

b. ROI will decrease.

c. WACC will increase.

d. WACC will decrease.