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Finance Flashcards

Finance 326 chap 2

Net working capital is defined as: E. current assets minus current liabilities.
The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the: B. income statement.
The financial statement that summarizes a firm’s accounting value as of a particular date is called the: D. balance sheet.
Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year? C. Noncash item
Which one of the following terms is defined as the total tax paid divided by the total taxable income? A. Average tax rate
Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns? C. Marginal tax rate
Cash flow from assets is defined as: C. operating cash flow minus the change in net working capital minus net capital spending.
Operating cash flow is defined as: B. the cash that a firm generates from its normal business activities.
Which one of the following has nearly the same meaning as free cash flow? B. Cash flow from assets
Cash flow to creditors is defined as: A. interest paid minus net new borrowing.
Cash flow to stockholders is defined as: D. dividends paid minus net new equity raised.
Which one of the following is an intangible fixed asset? C. Copyright
Delivery trucks are classified as: D. tangible fixed assets.
Which one of the following is included in net working capital? B. Accounts payable
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm’s net working capital: B. had to decrease.
Which one of the following is included in net working capital? E. Invoice from a supplier for inventory purchased
Shareholders’ equity is equal to: C. net fixed assets minus long-term debt plus net working capital.
Which one of the following is an equity account? A. Paid-in surplus
Which one of the following statements is correct? A. Shareholders’ equity is the residual value of a firm.
All else equal, an increase in which one of the following will decrease owners’ equity? B. Increase in accounts payable
Which one of the following will decrease the net working capital of a firm? E. Making a payment on a long-term debt
Which one of the following will decrease the liquidity level of a firm? A. Cash purchase of inventory
Highly liquid assets: D. can be sold quickly at close to full value.
Financial leverage: E. increases the potential return to the shareholders.
Which one of the following statements concerning market and book values is correct? B. The market value tends to provide a better guide to the actual worth of an asset than does the book value.
Which one of the following is included in the market value of a firm but not in the book value? D. Reputation of the firm
The market value of a firm’s fixed assets: E. is equal to the estimated current cash value of those assets.
Which one of the following statements is correct concerning a firm’s fixed assets? A. The market value is the expected selling price in today’s economy.
Which one of the following statements concerning the balance sheet is correct? C. Assets are listed in descending order of liquidity.
An income statement prepared according to GAAP: E. records expenses based on the matching principle.
An increase in which one of the following will increase net income D. Revenue
Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle?I. Payment is collected for the sale of a good or service.II. The earnings process is virtually complete.III. The value of a sale can be reliably determined.IV. The product is physically delivered to the buyer. C. II and III only
Depreciation does which one of the following for a profitable firm? D. Lowers taxes
The recognition principle states that: E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
The matching principle states that: C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
Which one of the following statements related to the income statement is correct D. Net income is distributed either to dividends or retained earnings.
Firms that compile financial statements according to GAAP: D. can still manipulate their earnings to some degree.
The concept of marginal taxation is best exemplified by which one of the following? C. Mitchell’s Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes.
The corporate tax structure in the U.S. is based on a: E. modified flat-rate tax.
Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant? C. An increase in depreciation
A negative cash flow to stockholders indicates a firm: E. received more from selling stock than it paid out to shareholders.
If a firm has a negative cash flow from assets every year for several years, the firm: A. may be continually increasing in size.
An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm? E. Depreciation
Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued? E. Positive cash flow to stockholders
Net capital spending is equal to: A. ending net fixed assets minus beginning net fixed assets plus depreciation.
Which one of the following relates to a negative change in net working capital E. Increase in current liabilities with no change in current assets for the period
Which one of the following will increase cash flow from assets but not affect the operating cash flow? C. Sale of a fixed asset
Cash flow to creditors is equal to: C. beginning long-term debt minus ending long-term debt plus interest paid.
Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? E. Positive cash flow from assets
Kroeger Exporters has total assets of $74,300, net working capital of $22,900, owners’ equity of $38,600, and long-term debt of $23,900. What is the value of the current assets? D. $34,700Current liabilities = $74,300 – $38,600 – $23,900 = $11,800; Current assets = $11,800 + $22,900 = $34,700
Morgantown Movers has net working capital of $11,300, current assets of $31,200, equity of $53,400, and long-term debt of $11,600. What is the amount of the net fixed assets? E. $53,700Net fixed assets = $11,600 + $53,400 – $11,300 = $53,700
The Draiman, Inc. currently has $3,600 in cash. The company owes $41,800 to suppliers for merchandise and $21,500 to the bank for a long-term loan. Customers owe The Draiman $18,000 for their purchases. The inventory has a book value of $53,300 and an estimated market value of $61,200. If the store compiled a balance sheet as of today, what would be the book value of the current assets? D. $74,900Current assets = $3,600 + $18,000 + $53,300 = $74,900
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners’ equity of $21,100. What is the value of the net working capital? B. $10,400Net working capital = $21,100 + $8,600 – $19,300 = $10,400
Early Works had $87,600 in net fixed assets at the beginning of the year. During the year, the company purchased $6,400 in new equipment. It also sold, at a price of $2,300, some old equipment with a book value of $1,100. The depreciation expense for the year was $3,700. What is the net fixed asset balance at the end of the year? D. $87,200Ending net fixed assets = $87,600 + $6,400 – $1,100 – $3,700 = $87,200
Plato’s Foods has ending net fixed assets of $84,400 and beginning net fixed assets of $79,900. During the year, the firm sold assets with a total book value of $13,600 and also recorded $14,800 in depreciation expense. How much did the company spend to buy new fixed assets? C. $32,900New fixed asset purchases = $84,400 – $79,900 + $13,600 + $14,800 = $32,900
Red Roofs, Inc. has current liabilities of $24,300 and accounts receivable of $7,800. The firm has total assets of $43,100 and net fixed assets of $23,700. The owners’ equity has a book value of $21,400. What is the amount of the net working capital? B. -$4,900Net working capital = $43,100 – $23,700 – $24,300 = -$4,900
Pete’s Warehouse has net working capital of $2,400, total assets of $19,300, and net fixed assets of $10,200. What is the value of the current liabilities? D. $6,700Current liabilities = $19,300 – $10,200 – $2,400 = $6,700
Baugh and Essary reports the following account balances: inventory of $17,600, equipment of $128,300, accounts payable of $24,700, cash of $11,900, and accounts receivable of $31,900. What is the amount of the current assets? C. $61,400Current assets = $17,600 + $11,900 + $31,900 = $61,400
Donner United has total owners’ equity of $18,800. The firm has current assets of $23,100, current liabilities of $12,200, and total assets of $36,400. What is the value of the long-term debt? A. $5,400Long-term debt = $36,400 – $18,800 – $12,200 = $5,400
The Braxton Co. has beginning long-term debt of $64,500, which is the principal balance of a loan payable to Centre Bank. During the year, the company paid a total of $16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000. What is the value of the ending long-term debt? D. $63,300Ending long-term debt = $64,500 – $16,300 + $4,100 + $11,000 = $63,300
The Toy Store has beginning retained earnings of $28,975. For the year, the company earned net income of $4,680 and paid dividends of $1,600. The company also issued $3,000 worth of new stock. What is the value of the retained earnings account at the end of the year? D. $32,055Retained earnings = $28,975 + $4,680 – $1,600 = $32,055
Leslie Printing has net income of $26,310 for the year. At the beginning of the year, the firm had common stock of $55,000, paid-in surplus of $11,200, and retained earnings of $48,420. At the end of the year, the firm had total equity of $142,430. The firm does not pay dividends. What is the amount of the net new equity raised during the year? A. $1,500Net new equity = $142,430 – $26,310 – $55,000 – $11,200 – $48,420 = $1,500
The Embroidery Shoppe had beginning retained earnings of $18,670. During the year, the company reported sales of $83,490, costs of $68,407, depreciation of $8,200, dividends of $950, and interest paid of $478. The tax rate is 35 percent. What is the retained earnings balance at the end of the year? A. $21,883.25Net income = ($83,490 – $68,407 – $8,200 – $478) × (1 – 0.35) = $4,163.25; Ending retained earnings = $18,670 + $4,163.25 – $950 = $21,883.25
The owners’ equity for The Deer Store was $58,900 at the beginning of the year. During the year, the company had aftertax income of $4,200, of which $3,200 was paid in dividends. Also during the year, the company repurchased $6,500 of stock from one of the shareholders. What is the value of the owners’ equity at year end? A. $53,400Ending owners’ equity = $58,900 + $4,200 – $3,200 – $6,500 = $53,400
Gino’s Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners’ equity? C. $71,600Owners’ equity = $29,800 + $64,800 – $23,000 = $71,600
The Pier Import Store has cash of $34,600 and accounts receivable of $54,200. The inventory cost $92,300 and can be sold today for $146,900. The fixed assets were purchased at a cost of $234,500 of which $107,900 has been depreciated. The fixed assets can be sold today for $199,000. What is the total book value of the firm’s assets? B. $307,700Total book value = $34,600 + $54,200 + $92,300 + $234,500 – $107,900 = $307,700
Lester’s Fried Chick’n purchased its building 11 years ago at a cost of $139,000. The building is currently valued at $179,000. The firm has other fixed assets that cost $66,000 and are currently valued at $58,000. To date, the firm has recorded a total of $79,000 in depreciation on the various assets. The company has current liabilities of $36,600 and net working capital of $18,400. What is the total book value of the firm’s assets? A. $181,000Book value = $139,000 + $66,000 – $79,000 + $18,400 + $36,600 = $181,000
The financial statements of Jame’s Auto Repair reflect cash of $14,600, accounts receivable of $11,500, accounts payable of $22,900, inventory of $17,800, long-term debt of $42,000, and net fixed assets of $63,800. The firm estimates that if it wanted to cease operations today it could sell the inventory for $35,000 and the fixed assets for $49,000. The firm could also collect 100 percent of its receivables. What is the market value of the assets? E. $110,100Market value = $14,600 + $11,500 + $35,000 + $49,000 = $110,100
The Good Life Store has sales of $79,600. The cost of goods sold is $48,200 and the other costs are $18,700. Depreciation is $8,300 and the tax rate is 34 percent. What is the net income? A. $2,904Net income = ($79,600 – $48,200 – $18,700 – $8,300)(1 – 0.34) = $2,904
Chevelle, Inc. has sales of $487,000 and costs of $394,500. The depreciation expense is $43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is 35 percent. What is the addition to retained earnings? D. $13,325Addition to retained earnings = [($487,000 – $394,500 – $43,800 – $18,200)(1 – 0.35)] – $6,500 = $13,325
Last year, The Pizza Joint added $4,100 to retained earnings from sales of $93,600. The company had costs of $74,400, dividends of $2,500, and interest paid of $1,400. The tax rate was 34 percent. What was the amount of the depreciation expense? C. $7,800Earnings before interest and taxes = [($4,100 + $2,500)/(1 – 0.34)] + $1,400 = $11,400; Depreciation = $93,600 – $74,400 – $11,400 = $7,800
Holly Farms has sales of $581,600, costs of $479,700, depreciation expense of $32,100, and interest paid of $8,400. The tax rate is 42 percent. How much net income did the firm earn for the period? B. 35,612Net income = ($581,600 – $479,700 – $32,100 – $8,400)(1 – 0.42) = $35,612
For the year, Movers United has net income of $31,800, net new equity of $7,500, and an addition to retained earnings of $24,200. What is the amount of the dividends paid? C. $7,600Dividends paid = $31,800 – $24,200 = $7,600
ACE, Inc. incurred depreciation expenses of $21,900 last year. The sales were $811,400 and the addition to retained earnings was $14,680. The firm paid interest of $9,700 and dividends of $10,100. The tax rate was 40 percent. What was the amount of the costs incurred by the firm? D. $738,500.00Earnings before interest and taxes = [($14,680 + $10,100)/(1 – 0.40)] + $9,700 = $51,000; Costs = $811,400 – $21,900 – $51,000 = $738,500
Bridgewater Furniture has sales of $811,000, costs of $658,000, and interest paid of $21,800. The depreciation expense is $56,100 and the tax rate is 34 percent. At the beginning of the year, the firm had retained earnings of $318,300 and common stock of $250,000. At the end of the year, the firm has retained earnings of $322,500 and common stock of $280,000. What is the amount of the dividends paid for the year? E. $45,366Dividends paid = [($811,000 – $658,000 – $56,100 – $21,800)(1 – 0.34)] – ($322,500 – $318,300) = $45,366
Bama & Co. owes a total of $21,684 in taxes for this year. The taxable income is $61,509. If the firm earns $100 more in income, it will owe an additional $56 in taxes. What is the average tax rate on income of $71,609? E. 35.29 percentAverage tax rate = ($21,684 + $56)/$61,609 = 35.29 percent
Paddle Fans & More has a marginal tax rate of 34 percent and an average tax rate of 23.7 percent. If the firm earns $138,500 in taxable income, how much will it owe in taxes? C. $32,824.50Tax = ($138,500)(0.237) = $32,824.50
Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000. What is the marginal tax rate at this level of income? E. 51.18 percentMarginal tax = ($56,211 – $48,329)/($565,000 – $549,600) = 51.18 percent
Tax Income Tax Rate0- 50,000 15%50,001- 75,000 25% 75,001- 100,000 34%100,001- 335,000 39%335,001- 10,000,000 34%Bait and Tackle has taxable income of $411,562. How much does it owe in taxes? D. $139,931.08Total tax = ($50,000)(0.15) + ($25,000)(0.25) + ($25,000)(0.34) + ($235,000)(0.39) + ($411,562 – $335,000)(0.34) = $139,931.08
Tax Income Tax Rate0- 50,000 15%50,001- 75,000 25% 75,001- 100,000 34%100,001- 335,000 39%335,001- 10,000,000 34%The Holiday Inn earned $177,284 in taxable income for the year. How much tax does the company owe on this income? C. $52,390.76Total tax = ($50,000)(0.15) + ($25,000)(0.25) + ($25,000)(0.34) + ($177,284 – $100,000)(0.39) = $52,390.76
The Plaza Cafe has an operating cash flow of $78,460, depreciation expense of $8,960, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: Begining Ending Balance BalanceCurrent assets $141,680 $138,509Net Fixed assets $687,810 $703,411current liabilities $87,340 $91,516Long-term debt $267,000 $248,000What is the amount of the cash flow from assets? B. $61,246Cash flow from assets = $78,460 – ($703,411 – $687,810 + $8,960) – [($138,509 – $91,516) – ($141,680 – $87,340)] = $61,246
Miser Materials paid $27,500 in dividends and $28,311 in interest over the past year while net working capital increased from $13,506 to $18,219. The company purchased $42,000 in net new fixed assets and had depreciation expenses of $16,805. During the year, the firm issued $25,000 in net new equity and paid off $21,000 in long-term debt. What is the amount of the cash flow from assets? E. 51,811Cash flow from assets = ($28,311 + $21,000) + ($27,500 – $25,000) = $51,811
The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of the firm’s operating cash flow if the tax rate is 34 percent? D. $93,560EBIT = $821,300 – $698,500 – $28,400 = $94,400; Tax = ($94,400 – $8,400) × 0.34 = $29,240; OCF = $94,400 + $28,400 – $29,240 = $93,560
The Paint Ball Range, Inc. paid $30,500 in dividends and $7,600 in interest over the past year. Sales totaled $211,800 with costs of $167,900. The depreciation expense was $16,500. The applicable tax rate is 34 percent. What is the amount of the operating cash flow? D. $37,168EBIT = $211,800 – $167,900 – $16,500 = $27,400; Tax = ($27,400 – $7,600) × 0.34 = $6.732; OCF = $27,400 + $16,500 – $6,732 = $37,168
The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending? E. $69,800Net capital spending = $371,920 – $348,200 + $46,080 = $69,800
The financial statements of Backwater Marina reflect depreciation expenses of $41,600 and interest expenses of $27,900 for the year. The current assets increased by $31,800 and the net fixed assets increased by $28,600. What is the amount of the net capital spending for the year? E. $70,200Net capital spending = $28,600 + $41,600 = $70,200
Andre’s Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital? C. $1,400Change in net working capital = ($82,600 – $85,100) – ($67,200 – $71,100) = $1,400
The balance sheet of Binger, Inc. has the following balances: Begining Ending Balance BalanceCash $21,400 $16,800Accounts Recei $47,400 $52,300Inventory $83,800 $77,400Net fixed assets $211,600 $203,800Accounts payable $54,900 $56,900Long-term debt $170,000 $185,000 What is the amount of the change in net working capital? A. -$8,100Change in net working capital = ($16,800 + $52,300 + $77,400 – $56,900) – ($21,400 + $47,400 + $83,800 – $54,900) = -$8,100
During the past year, Arther Anderson Services paid $360,800 in interest along with $48,000 in dividends. The company issued $230,000 of stock and $200,000 of new debt. The company reduced the balance due on the old debt by $225,000. What is the amount of the cash flow to creditors? D. $385,800Cash flow to creditors = $360,800 – $200,000 + $225,000 = $385,800
A firm has earnings before interest and taxes of $25,380 with a net income of $14,220. The taxes amounted to $5,400 for the year. During the year, the firm paid out $43,800 to pay off existing debt and then later borrowed an additional $24,000. What is the amount of the cash flow to creditors? C. $25,560Interest = $25,380 – $14,220 – $5,400 = $5,760; Cash flow to creditors = $5,760 + $43,800 – $24,000 = $25,560
The balance sheet of a firm shows current liabilities of $56,300 and long-term debt of $289,200 as of last year. Current liabilities are $76,900 and long-term debt is $248,750 as of today, which is the end of the current year. The financial statements for the current year reflect an interest paid amount of $29,700 and dividends of $19,000. What is the amount of the net new borrowing? A. -$40,450Net new borrowing = $248,750 – $289,200 = -$40,450
For the past year, LP Gas, Inc. had cash flow from assets of $38,100 of which $21,500 flowed to the firm’s stockholders. The interest paid was $2,300. What is the amount of the net new borrowing? A. -$14,300Cash flow to creditors = $38,100 – $21,500 = $16,600; Net new borrowing = $2,300 – $16,600 = -$14,300
Six months ago, Benders Gym repurchased $20,000 of its common stock. The company pays regular quarterly dividends totaling $8,500 per quarter. What is the amount of the cash flow to stockholders for the past year if no additional shares were issued? E. $54,000Cash flow to stockholders = ($8,500 × 4) + $20,000 = $54,000
The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year. During that time, the firm invested $28,000 in net working capital and incurred net capital spending of $47,900. What is the amount of the cash flow to stockholders for the last year? D. $39,700Cash flow to stockholders = ($187,000 – $28,000 – $47,900) – $71,400 = $39,700
The Brown Jug has compiled the following information: 2013 2014 sales $312,400 $198,500interest paid $18,720 $16,480long-term debt $225,000 $187,000 owners’ equity $134,600 $128,700depreciation $21,600 $20,200accounts receivable $15,600 $18,900 other costs $32,400 $27,100inventory $36,800 $32,800account payable $12,800 $21,900cost of goods sold $186,200 $128,300cash $36,500 $12,700taxes $18,200 $1,000What is the operating cash flow for 2014? C. $42,1002014 operating cash flow = $198,500 – $27,100 – $128,300 – $1,000 = $42,100
Home Supply, Inc. has compiled the following information: 2013 2014Sales $427,400 $511,500Interest paid $19,800 $21,600Long-term debt $260,000 $295,000Common stock $150,000 $160,000depreciation $24,600 $23,500accounts receivable $38,200 $34,900other costs $58,400 $34,900inventory $58,400 $61,100accounts payable $36,800 $32,900costs of goods sold $274,200 $289,300cash $41,500 $36,700taxes $11,400 $39,400net fixed assets $336,900 $392,200retained earnings $28,600 $32,700For 2014, the cash flow from assets is _____ and the cash flow to shareholders is ______. A. $49,100; $62,5002014 operating cash flow = $511,500 – $61,100 – $289,300 – $39,400 = $121,700; Change in net working capital = ($34,900 + $56,800 – $32,900 + $36,700) – ($38,200 + $58,800 – $36,800 + $41,500) = -$6,200; Net capital spending = $392,200 – $336,900 + $23,500 = $78,800; Cash flow from assets = $121,700 – (-$6,200) – $78,800 = $49,100; Cash flow to creditors = $21,600 – ($295,000 – $260,000) = -$13,400; Addition to retained earnings = $32,700 – $28,600 = $4,100; Net income = $511,500 – $289,300 – $61,100 – $23,500 – $21,600 – $39,400 = $76,600; Dividends paid = $76,600 – $4,100 = $72,500; Cash flow to stockholders = $72,500 – ($160,000 – $150,000) = $62,500; Cash flow from assets = -$13,400 + $62,500 = $49,100
The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net income for this firm? D. $76,428Net income = ($398,600 – $254,800 – $26,400 – $1,600) (1 – 0.34) = $76,428
Andersen’s Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 34 percent. The firm paid out $16,500 in dividends. What is the addition to retained earnings? B. $42,438Addition to retained earnings = [($318,400 – $199,400 – $28,600 – $1,100)(1 – 0.34)] – $16,500 = $42,438
Roscoe’s purchased new machinery three years ago for $1.8 million. The machinery can be sold to Stewart’s today for $1.2 million. Roscoe’s current balance sheet shows net fixed assets of $960,000, current liabilities of $348,000, and net working capital of $121,000. If all the current assets were liquidated today, the company would receive $518,000 cash. The book value of the firm’s assets today is _____ and the market value is ____. E. $1,429,000; $1,718,000Book value = $960,000 + $348,000 + $121,000 = $1,429,000; Market value = $1,200,000 + $518,000 = $1,718,000
Daniel’s Market has sales of $36,600, costs of $28,400, depreciation expense of $3,100, and interest expense of $1,500. If the tax rate is 34 percent, what is the operating cash flow, OCF? D. $6,976EBIT = $36,600 – $28,400 – $3,100 = $5,100; Tax = ($5,100 – $1,500) × 0.34 = $1,224; OCF = $5,100 + $3,100 – $1,224 = $6,976
The Play House’s December 31, 2013, balance sheet showed net fixed assets of $1,238,000 and the December 31, 2014, balance sheet showed net fixed assets of $1,416,000. The company’s 2014 income statement showed a depreciation expense of $214,600. What was the firm’s net capital spending for 2014? C. $392,600Net capital spending = $1,416,000 – $1,238,000 + $214,600 = $392,600
The December 31, 2013, balance sheet of Suzette’s Market showed long-term debt of $638,100 and the December 31, 2014, balance sheet showed long-term debt of $574,600. The 2010 income statement showed an interest expense of $42,300. What was the firm’s cash flow to creditors during 2014? E. $105,800Cash flow to creditors = $42,300 – ($574,600 – $638,100) = $105,800
Gorman Distributors shows the following information on its 2014 income statement: sales = $317,800; costs = $211,400; other expenses = $18,500; depreciation expense = $31,200; interest expense = $2,100; taxes = $18,600; dividends = $12,000. In addition, you’re told that the firm issued $4,500 in new equity during 2014, and redeemed $6,500 in outstanding long-term debt. If net fixed assets increased by $7,400 during the year, what was the addition to net working capital? B. $14,600OCF – $317,800 – $211,400 – $18,500 – $18,600 = $69,300; NCS = $7,400 + $31,200 = $38,600; CFA = CFC + CFS = [$2,100 – (-$6,500)] + [$12,000 – $4,500] = $16,100; Add to NWC = OCF – NCS – CFA = $69,300 – $38,600 – $16,100 = $14,600
Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $12,000. The additional project will increase Able Co.’s taxes by _____ and Bravo Co.’s taxes by ____.Tax Income Tax Rate0- 50,000 15%50,001- 75,000 25% 75,001- 100,000 34%100,001- 335,000 39%335,001- 10,000,000 34% D. $4,680; $4,080Able Co. marginal tax = $12,000 × 0.39 = $4,680; Bravo Co. marginal tax = $12,000 × 0.34 = $4,080
During the year, The Dalton Firm had sales of $3,210,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $2,540,000, $389,000, and $112,000, respectively. In addition, the company had an interest expense of $118,000 and a tax rate of 34 percent. (Ignore any tax loss carryback or carryforward provisions.) What is its operating cash flow? A. $263,660EBIT = [($3,210,000 – $2,540,000 – $389,000 – $112,000 = $169,000; Tax = ($169,000 – $118,000) × 0.34 = $17,340; OCF = $169,000 + $112,000 – $17,340 = $263,660
Precision Manufacturing had the following operating results for 2014: sales = $38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest expense = $1,400; dividends paid = $1,000. At the beginning of the year, net fixed assets were $14,300, current assets were $8,700, and current liabilities were $6,600. At the end of the year, net fixed assets were $13,900, current assets were $9,200, and current liabilities were $7,400. The tax rate for 2014 was 34 percent. What is the cash flow from assets for 2014? D. $9,492OCF = [($38,900 – $24,600 – $1,700 – $1,400) (1 – 0.34)] + $1,700 + $1,400 = $10,492; CFA = $10,492 – ($13,900 – $14,300 + $1,700) – [($9,200 – $7,400) – $8,700 – $6,600)] = $9,492

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