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Finance Flashcards

FINANCE 3716- CH 2

false In the United States, publicly traded companies can choose whether or not they wish to release periodic financial statements.
false Financial statements are optional accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firmʹs assets and the financing of those assets, and a prediction of the firmʹs future performance.
false International Financial Reporting Standards are taking root throughout the world. However, it is unlikely that the U.S. will report according to IFRS before the second half of the twenty -first century.
It makes it easier to compare the financial results of different firms What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP) when creating financial statements?
to provide a means for interested outside parties such as creditors to obtain informationabout a firm, with an overview of the short- and long-term financial condition of abusiness Which of the following best describes why a firm produces financial statements?
United States The exchanges in which of the following countries or regions do NOT accept the International Financial Reporting Standards set out by the International Accounting Standards Board?
the statement of activities Which of the following is NOT one of the financial statements that must be produced by a public company?
10-K U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form?
statement of sources and uses of cash Which of the following is NOT a financial statement that every public company is required to produce?
auditor The third party who checks annual financial statements to ensure that they are prepared according to Generally Accepted Accounting Principles (GAAP) and verifies that the information reported is reliable is the ________.
What is the role of an auditor in financial statement analysis? 1. to ensure that the annual financial statements are prepared accurately2. to ensure that the annual financial statements are prepared according to GenerallyAccepted Accounting Principles (GAAP)3. to verify that the information used in preparing the annual financial statements is reliable
balance sheet, income statement, statement of cash flows, statement of stockholder’s equity four financial statements that all public companies must product
false The balance sheet shows the assets, liabilities, and stockholdersʹ equity of a firm over a given length of time
true Stockholdersʹ equity is the difference between a firmʹs assets and liabilities, as shown on the balance sheet
the amount of deferred tax liability held by the company Which of the following amounts would be included on the right side of a balance sheet?
The assets must equal liabilities plus stockholdersʹ equity because stockholdersʹ equity is the difference between the assets and the liabilities Which of the following best describes why the left and right sides of a balance sheet are equal?
a patent for a drug held by the company A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?
revenue received for the delivery of items that have not yet been delivered A delivery company is creating a balance sheet. Which of the following would most likely be considered a short-term liability on this balance sheet?
Since net working capital is negative, the company will not have enough funds to meet its obligations A small company has current assets of $112,000 and current liabilities of $117,000. Which of the following statements about that company is most likely to be true?
Valuable assets such as the companyʹs reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet What is the main problem in using a balance sheet to provide an accurate assessment of the value of a companyʹs equity?
common stock, paid in surplus, and retained earnings The major components of stockholdersʹ equity are ________.
Assets – Current liabilities = Long-term liabilities Which of the following balance sheet equations is INCORRECT?
current asset Cash is a ________.
current liability Accounts payable is a ________.
long-term liability A 30-year mortgage loan is a ________.
The balance sheet reports liabilities on the left-hand side Which of the following statements regarding the balance sheet is INCORRECT?
true In general, a successful firm will have a market-to-book ratio that is substantially greater than 1.
Investors believe the companyʹs assets are not likely to be profitable since its market valueis worth less than its book value A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?
1.35 GenCorp. has a total debt of $140 million and stockholdersʹ equity of $50 million. It also has 26 million shares outstanding, with a market price of $4.00 per share. What is GenCorpʹs market debt-equity ratio?
$3.8 billion A company has a share price of $22.15 and 118 million shares outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is 3.2, and it has cash of $800 million. How much would it cost to take over this business assuming you pay its enterprise value?
2.35 Convex Industries has inventories of $218 million, current assets of $1.4 billion, and current liabilities of $504 million. What is its quick ratio?
debt-equity or equity multiplier ratio Which ratio would you use to measure the financial health of a firm by assessing that firmʹs leverage?
Company A is less likely than Company B to have sufficient working capital to meet its short-term needs. Company A has current assets of $42 billion and current liabilities of $41 billion. Company B has current assets of $2.7 billion and current liabilities of $1.8 billion. Which of the following statements is correct, based on this information?
The balance sheet is prepared on the fiscal closing date for the accounts of a firm that may or may not coincide with the calendar year-end of December 31st. How does a firm select the date for preparation of its balance sheet?
The Assets side will increase under Net property, plant, and equipment with the net effect of the new processing plant, while the Liabilities side will correspondingly show the new debt that was incurred in paying for the plant. What will be the effect on the balance sheet if a firm buys a new processing plant through a new loan?
true
a firm’s net income the difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period, the last or “bottom” line of the income statement, a measure of the firm’s profitability over a given period
firm’s gross profit the difference between sales revenues and the costs
corporate taxes Which of the following is NOT considered to be an operating expense on the income statement?
operating expenses on the income statement administrative expenses and overhead, salaries, depreciation and amortization
total sales – cost of sales gross profit is calculates as ________.
interest expense which of the following is NOT an operating expense?
operating expense depreciation and amortization, selling, general, and administrative expenses, research and development
The income statement is prepared on the fiscal closing date for the accounts of a firm that may or may not coincide with the calendar year-end of December 31st. Typically the income statement spans the flow between two adjacent balance sheets. How does a firm select the dates for preparation of its income statement?
The effect on the income statement will be in the form of a depreciation expense for the first year on the new processing plant. What will be the effect on the income statement if a firm buys a new processing plant through a new loan?
true Price-earnings ratios tend to be high for fast-growing firms.
$330,000 In 2009, an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops. If sales in 2008 and 2009 were steady at $30 million, but the gross margin increased from 2.8% to 3.9% between those years, by what amount was the cost of sales reduced?
the firm is growing Which of the following is the LEAST likely explanation for a firmʹs high ROE?
a grocery store chain that has very high turnover, selling many multiples of its assets per year Which of the following firms would be expected to have a high ROE?
a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals Which of the following firms would be expected to have a high ROE based on that firmʹs high profitability?
1.59% Manufacturer A has a profit margin of 2.2%, an asset turnover of 1.7 and an equity multiplier of 5.0 .Manufacturer B has a profit margin of 2.5%, an asset turnover of 1.2 and an equity multiplier of 4.7 .How much asset turnover should manufacturer B have to match manufacturer Aʹs ROE?
Share price is a quantity related to equity holders, while operating income is an amount that is related to the whole firm. Why must care be taken when comparing a firmʹs share price to its operating income?
true A firmʹs statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period.
It includes cash inflows from services rendered Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?
It adds all non-cash entries related to a firmʹs operating activities Which of the following is a way that the operating activity section of the statement of cash flows adjusts Net Income from the balance sheet?
It would be an addition to property, plant and equipment so it would be an investing activity Allen Company bought a new copy machine to be depreciated straight line for three years for use by sales personnel. Where would this purchase be reflected on the Statement of Cash Flows?
The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows A printing company prints a brochure for a client and then bills them for this service. At the time the printing companyʹs financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded?
It will be depreciated over time on the income statement and subtracted as a capital expenditure on the statement of cash flows A manufacturer of plastic bottles for the medical trade purchases a new compression blow molder for its bottle production plant. How will the cost to the company of this piece of equipment be recorded?
as an outflow under investment activities A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows?
The last item in the statement of cash flows should equal the difference in cash balances between two adjacent balance sheets How can we cross check the statement of cash flows?
The new loan entry should show as a cash inflow for the firm, while the payment for the new processing plant will be entered as a cash outflow What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?
false The management of public companies is not legally required to disclose any off-balance sheettransactions.
that the company has lost a class action suit brought against the firm by its employees andis expected to have to pay a large amount of damages A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts, if true, in the firmʹs management discussion and analysis (MD&A)?
to disclose the financial implications of any off-balance sheet transactions The notes to the financial statements would LEAST likely be used for which of the following purposes?
Not all actions of the firm can be directly converted to an entry on the financial statements. For example, the firm may be involved in off balance sheet transactions, which have to be reported through notes to the financial statements What is the need for the notes to the financial statements when a firmʹs operations are already documented in the financial statements?
false Use of Generally Accepted Accounting Principles (GAAP) and auditors have eliminated the danger of inadvertent or deliberate fraud in financial statements
The off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A) or notes to the financial statement One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while giving a promise to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the assets was not disclosed. Which of the following is one of the ways that such a transaction is deceptive?
by raising its reported earnings WorldCom classified $3.85 billion in operating expenses as long-term investments. How would this make WorldComʹs financial statements more attractive to investors?
by forcing companies to audit financial statements they release Which of the following is NOT one of the ways that the Sarbanes-Oxley Act sought to improve the accuracy of information given to both boards and shareholders?
It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process What are the requirements of section 404 of SOX?
Readers of even fraudulent financial statements can spot signs of a firmʹs financial health, if those statements are read fully and with care Which of the following is the main lesson that analysts and investors should take from the cases of Enron and WorldCom?
As the name implies, external auditors act as third party monitors to a firmʹs financial reporting process What role do external auditors play in a firmʹs financial reporting process?
All firms quoted on a U.S. exchange are required to use GAAP in their financial reporting process. This standardization process makes it easier to adjust and/or compare the financial figures across different firms What role does Generally Accepted Accounting Principles (GAAP) play in the accounting process?
Examples of some firms that had practiced inaccurate reporting are Enron and WorldCom State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements
Many of the problems of Enron and WorldCom were kept hidden from boards and shareholders, until it was too late. People felt that the accounting statements of these companies, while often remaining true to the letter of GAAP, did not present an accurate picture of the financial health of the company According to the text, did Enron and WorldCom follow Generally Accepted Accounting Principles (GAAP) in their financial reporting process?
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Finance Flashcards

Finance Ch. 8

The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following? The investment is mutually exclusive with another investment of a different size.
Which one of the following statements is correct? The payback period ignores the time value of money.
Which one of the following is most closely related to the net present value profile? internal rate of return
Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B? mutually exclusive
If an investment is producing a return that is equal to the required return, the investment’s net present value will be: IRR = RR = NPV zero zero
The net present value: decreases as the required rate of return increases.
Which one of the following statements is correct? If the internal rate of return equals the required return, the net present value will equal zero.
Which one of the following indicates that a project is expected to create value for its owners? Positive net present value
Which one of the following statements is correct? Assume cash flows are conventional. When the internal rate of return is greater than the required return, the net present value is positive.
The internal rate of return is the: discount rate that results in a zero net present value for the project.
NPV present value of all future cash inflows less the initial cash outlay. net value of the project in todays dollars+:-considers timing-considers risk-comparison of diff cash flows of levels of risk-gives absolute dollars-:based on estimates
Payback method provides the length of time required to “payback” or recover the firms initial outlay in a new project+:-easy to calc-screening method, good for small projects-May allow to see if cash flows are accurate-:-ignores time value and risk-biased against long-term projects
IRR rate of return of a project must earn so that the present value of future cash flows just equals the projects initial outlay+:-used by investores -easy to understand-able to compare diff cash flows and levels of risk-provides the max rr that will make the project accetable-easy comparison with rr-often usted with npv-:-possible multiple rates with unconventional cash flows-diff size projects may conflict with NPV-if projects are mutually exclusive may conflict with NPV
PI (profitability index) ratio of the present value benefits associated with the project to its cost. That is PI is the ratio of PV benefits the initial cost+:-consistent with TVM-incorporates risk with NPV-allow for the comparison of projects with different cash flows and levels of risk-allos the ranking of projects based on the PV of benefit per dollar upfront-: -difficult to accurately forecast the cash flows and the correct discount rate-problems of scale. may give conflicting results with mutually exclusive projects
if RR changes will IRR no because IRR is based off of cash flow not RR
NPV future is built in with cash flow and rr
NPV increases RR decreases
Capital rationing does not support the goal of the firm-firm is unable to raise the required financing-firm does not have enough qualified managers-company management may be pessimistic about economy-intangible reasons like managers fear debt
special issues with ranking 1. problem of scale (size disparity)2. Reinvestment decision and assumptions3. Unequal lives (projects with diff EUL)
Risk Adjusted Discount Rate (RADR) 1. Previously we assumed that we would use the same discount rate to evaluate all projects2. unrealistic: one discount rate does not fit all3. Each project should be evaluated on the basis of its individual risk
independent can choose all that have NPV greater than 0
mutually exclusive choose one
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Finance Chapter 6 Quiz

Credit is an arrangement to receive cash, goods, or services now and pay for them in the future True
Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals True
Consumer credit is based on trust in people’s ability and willingness to pay bills when due True
Consumer credit dates back to colonial time True
Most economists do not recognize consumer credit as a major force in the American economy False
“Shopaholics” and young adults are most vulnerable to misusing credit True
College students are not a prime target for credit card issuers False
Credit when effectively used, can help you have more and enjoy more True
It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying large amounts of cash True
Perhaps the greatest disadvantage of using credit is the temptation to overspend True
Although credit allows more immediate satisfactory of needs and desires, it does not increase total purchasing power True
With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts. False
In a closed-end credit, loans are made on a continuous basis and you make at least partial paymen False
Closed-end in credit is used for a specific purpose and involves a specified amount True
In a closed-end credit, generally the seller holds title to the merchandise until the payments have been completed True
Consumer credit: dates back to colonial times.
When did installment credit explode on the American scene? with the advent of the automobile in the early 1900s
The baby boom generation currently represents about 30 percent of the population but holds nearly ____________ percent of the debt outstanding. 60
Although credit permits more immediate satisfaction of needs and desires, it: does not increase total purchasing power.
By paying cash for a purchase, you: forgo the opportunity to keep the cash in an interest-bearing account.
Another name for closed-end credit is: installment credit.
Kathy purchased a $2,000 digital TV from Young’s Appliances. She will make 12 equal payments over the next year to pay for it. She is using: closed-end credit
A good example of a closed-end credit is: a mortgage loan.
Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances are examples of: closed-end credit.
Another name for open-end credit is: revolving credit.
The maximum amount of credit you are allowed by a creditor is called a(n): line of credit.
A good example of an open-end credit is: the use of a bank credit card to make a purchase.
Installment sales credit is a: loan that allows you to receive merchandise such as a refrigerator or furniture.
Karen is notified by her credit card company that credit limit on her credit card has just been increased to $10,000. This is one example of: a line of credit
Installment cash credit is a: direct loan of money for personal purposes.
Revolving check credit is a: prearranged loan for a specified amount that you can use by writing a special check.
The debit card: debits your account at the moment you buy goods or services.
In determining your credit capacity, you first provide for basic necessities, such as: mortgage or rent.
Experts suggest that you spend no more than ____________ percent of your net income on credit purchases. 20
Michael purchases a laptop computer from Best Buy. He will make one big payment without paying any interest as long as he pays it on or before August 15. This is an example of: single lump-sum credit
If you cosign a loan: you’ll have to pay up to the full amount of the debt if the borrower does not pay.
Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present credit activity? Credit Bureau
If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments? $300
What would be the maximum limit for an individual’s debt-to-equity ratio, excluding the home mortgage? 1.00
Which federal law regulates the use of credit reports, requires the deletion of obsolete information, and gives you access to your file? the Fair Credit Reporting Act of 1971
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Finance Flashcards

Chapter 6 – FINN1003

Using _______ to handle financial emergencies is recommended.a. a checking accountb. loansc. creditd. savings d. savings
Finance charges on two credit cards with the same state annual percentage rate (APR):a. will be the same as the rate calculated in the federal lawb. will always be the samec. will be determines by the type of credit card usedd. will be determined by the method used to calculate balancese. will be decided by the credit bureau d. will be determined by the method used to calculate balances
Retail charge cards are advantageous to merchants because:a. they help the merchants file for bankruptcyb. they help build consumer loyaltyc. they help the merchants in saving taxesd. they help the merchants get loanse. they help the merchants in giving loans to their supplier b. they help build consumer loyalty
True or False: The purpose of a credit report is to evaluate the kind of risk you pose to the lender True
The first step to take in establishing credit history is to…a. pay cash for all purchasesb. get a credit cardc. open checking and savings accountsd. borrow from neighbors c. open checking and savings accounts
Which of the following is true about credit scoring systems?a. Stronger the personal traits of a person, lower will be his credit scoreb. Credit unions calculate and sell credit scores to lendersc. Lower scores are better than higher scoresd. Females receive higher score than malese. Scoring systems are based on statistical studies e. Scoring systems are based on statistical studies
With a bank credit card, one can often avoid interest charges if…a. the account balance is below the credit limitb. the minimum payment is made every monthc. the account is a revolving credit accountd. the account balance is paid in full every month d. the account balance is paid in full every month
William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given way he uses one? a. High annual fee and low interest rateb. Low annual fee and short grace periodc. No annual fee and short grace periodd. No annual fee and long grace period d. No annual fee and long grace period
Interest will usually being to accrue immediately when you use a bank credit card to:a. meet a financial emergencyb. send paymentsc. make purchasesd. comput finance chargese. get cash advances e. get cash advances
Any credit card purchase will effectively be an interest-free loan if you:a. pay the previous balance by the due dateb. pay the minimum paymentc. receive a cash advanced. pay the entire balance on or before the due date d. pay the entire balance on or before the due date
True of False: People who let their credit balances build up are mortgaging their future True
True or False: The amount of finance charged one pays on a credit card depends only on the annual percentage rate (APR) and the amount one charges False
True or False: A credit report os routinely used to predict creditworthiness True
The decision whether or not to grant you credit will be made by….a. the credit bureau b. the credit card holderc. The Federal Trade Commissiond. Individual creditiors d. individual creditors
True or False: One can and should check his or her credit bureau file regularly true
True or False: Overspending will help you manage your budget effectively False
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Finance Midterm Quiz Questions

what should be the primary goal of financial management? maximizing shareholder wealth
Proper risk return management means? the firm must determine appropriate trade off between risk and return
what is one of the major disadvantages of a sole proprietorship? there is unlimited liability to the owner
what is a corporation? owned by stockholders, easily divisible between owners, and a separate legal entity
the agency theory examines the relationship between? owners of the firm and managers of the firm
why was the Sarbanes-Oxley Act passed? to control corrupt corporate financial behavior
what is insider trading? when someone has information not available to the public and use it to profit from trading in stocks
Money markets include which of the following securities? treasury bills and commercial paper
what is the major difference between money markets and capital markets? the timing of how long the security will be held onto
Capital markets do not include which of the following? commercial paper
what securities are included in capital markets? common stock, preferred stock, and government bonds
which of the following is not subtracted at operating income? interest expense
Reinvested funds into retained earnings theoretically belong to? common stockholders
which of the following would not be classified as a current asset? plant and property equipment
The statement of cash flows includes what? Operating activities, investing activities, and financing activities
which of the following is an outflow of cash? the payment of cash dividends
which of the following is an inflow of cash? the sale of the firm’s bonds
what is the key initial element in developing all pro forma statements? a sales forecast
the need for an increase or decrease in short term borrowing can be predicted by? a cash budget
the difference between total receipts and total payments is referred to as? net cash flow
in order to estimate production requirements what needs to be calculated? add projected sales in units to desired EI and subtract BI
The cost of operating leverage involves the use of what costs to magnify returns at high levels of operation? fixed costs
which of the following is concerned in operating profit as a result of a change in unit volume? Operating leverage
financial leverage deals with? the relationship of debt and equity in the capital structure
combined leverage is concerned with the relationship between? changes in volume and changes in EPS
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Finance Ch 3

Comon size financial statements present all balance sheet account values as a percentage of Total assets
The ratios that are based on financial statement values and used for comparison purposes are called financial ratios
The Du Pont identity can be totally defined by which one of the following? Equity multiplier and return on assets
which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? internal growth rate
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of thefollowing conditions? No new equity and constant debt-equity ratio
Which one of the following is the abbreviation for the U.S. government coding system that classifies afirm by its specific type of business operations? SIC
Builder’s Outlet just hired a new chief financial officer. To get a feel for the company, she wants tocompare the firm’s sales and costs over the past 3 years determine if any trends are present and alsodetermine where the firm might need to make changes. Which one of the following statements will bestsuit her purposes? Common-size income statement
A common-size balance sheet helps financial managers determine: If changes are occurring in a firms mix of assets
High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form ofannual dividends. Given this, the percent shown on a common-size income statement for the dividendaccount will: Vary in direct relation to the net profit percentage
Which one of the following transactions will increase the liquidity of a firm? Credit sale of inventory at cost
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0 Cash payment of an account payable
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: has positive net working capital
Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wantsto know how long the store can pay its bills given the amount of cash the store currently has? Cash Ratio
Which one of the following is a measure of long-term solvency? Equity multiplier
The cash coverage ratio is used to evaluate the: Ability of a firm to pay the interest on its debt
The equity multiplier is equal to : one plus the debt-equity ratio
Blooming Gardens has an inventory turnover of 16. this means the firm: Sells its inventory an average of 16 times per year
Which of the following best indicates a firm utilizing its assets more efficiently than it has in the past? Decrease in the capital intensity ratio
Kelso’s Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of thefollowing ratios would reflect this relationship? Total asset trunover
which one of the following will increase the profit margin of a firm, all else constant? Decrease in tax rate
You would like to borrow money three years from now to build a new building. In preparation forapplying for that loan, you are in the process of developing target ratios for your firm. Which set of ratiosrepresents the best target mix considering that you want to obtain outside financing in the relatively nearfuture? Cash coverage ratio = 2.6Debt-equity ratio = .3
All else constant, which one of the following will decrease if a firm increases its net income? Price-earnings ratio
Which one of the following statements is true concerning the price-earnings (PE) ratio? A high PE ratio may indicate that a firm is expecteed to grow significantly
New Century Products is a company that was founded last year. While the outlook for the company ispositive, it currently has negative earnings. If you wanted to measure the progress of this firm, which oneof the following ratios would probably be best to monitor given the firm’s current situation? Price-sales ratio
The Du Pont ID can be used to help a financial manager determine the: I. degree of financial leverage used by a firm.II. operating efficiency of a firm.III. utilization rate of a firm’s assets.IV. rate of return on a firm’s assets.A. II and III onlyB. I and III onlyC. II, III, and IV onlyD. I, II, and III only***E. I, II, III, and IV***
The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This costimprovement will increase which of the following ratios? I. Profit marginII. Return on assetsIII. Total asset turnoverIV. Return on equityA. I and II onlyB. I and III onlyC. II, III, and IV only*******D. I, II, and IV onlyE. I, II, III, and IV
Martha’s Sweet Shop reduced its fixed assets this year without affecting the shop’s operations, sales, orequity. This reduction will increase which of the following ratios? I. Capital intensity ratioII. Return on assetsIII. Total asset turnoverIV. Return on equityA. I and II onlyB. II and III onlyC. II, III, and IV onlyD. I, II, and IV onlyE. I, II, III, and IV
Donovan Brothers, Inc. would like to increase its internal rate of growth. Decreasing which one of thefollowing will help the firm achieve its goal? Dividend payout ratio
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is: Zero percent
Which of the following are determinants of a firms sustainable rate of growth? I. Amount of sales generated from each dollar invested in assetsII. Amount of debt per dollar of equityIII. Amount of current assets per dollar of current liabilitiesIV. Percent of net income distributed as dividendsA. I and III onlyB. II and IV only******C. I, II, and IV onlyD. II, III, and IV onlyE. I, II, III, and IV
Which of the following will increase the sustainable rate of growth for a firm? I. Decreasing the profit marginII. Increasing the dividend payout ratioIII. Decreasing the capital intensity ratioIV. Increasing the target debt-equity ratioA. I and II only******B. III and IV onlyC. II and IV onlyD. I, III, and IV onlyE. I, II, III, and IV
Financial statement analysis: provides usful information that can serve as a basis for forcasting future performance
which one of the following statements is correct? Adjustments have to be made when comparing the icome statments of firms which use different methods of accounting for inventory.
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chapter 19 vocab in personal finance

credit management following an individual plan for using credit wisely
debt adjustment the fromal process of taking over your debt situation for a period of time, after which you will be free of debt
credit counseling services will help you set up a voluntary credit plan and will give you good advice
reaffirmation if a person agrees to pay back a debt after it has been discharged by bankruptc, the agreement is called….
chapter 13 is often called the wage earner’s plan because creditors get some of their money back and the debtor enters a plan to pay off a portion of the total debt
chapter 7 is often called a straight bankruptcy proceeding, and it allows exempted assets that are considered necessary for survival
exempted property a value or possession, called_________, is something a debtor is allowed to keep after bankruptcy because it is considered necessary for survival
voluntary bankruptcy the debtor files a petition with the court asking is he/she be declared bankrupts
involuntary bankruptcy the creditor files a petition with the court asking that a debtor be declared bankrupt
bankrupt to be declared legally insolvent, or incapable of paying one’s bills
20/10 rule suggest that consumers use no more than 20 percent of yearlly take-home pay, or 10 percent of monthly take-home pay, to pay credit debts
discharge debts when a debt has been _______, it does not have to be paid
unsecured loan a(n)________ debt is a loan that is not backed by pledged assets
chapter 11 is for businesses and attempts to reorganize the debt structure rather than liquidate the business
chapter 7 what is known as striaight bankruptcy
mortgage loans the 20/10 rule does not apply to ….
7 once you have filed bankruptcy, the judgment remains on your credit record for atleast how many years?
30 when a debtor has reaffirmed a debt after a bankruptcy judgment he or she has how many days to change his or her mind
voluntary what is the most common kind of bankruptcy
discharged debts debts erassed by courts during a bankruptcy proceeding
credit repair a process of reestablishing a good credit rating
credit payment plan a record of your debts and a strategy to paying them off
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Finance Flashcards

Personal finance

Inflation increases the value of savings False
The rate of yearly earnings from an account, including compound interest annual yield percentage
Patients can minimize their own health care by doing all of the following except Insisting on the best medical specialist for care
Which of the following is not an advantage of using credit Ease of spending money you don’t have
A savings tool in which money is deposited for a set period of time and earns a set annual rate of interest certificate of deposit
A share in ownership of a corporation stock
the statistical characteristics of the population demographics
lost opportunity to earn interest on savings an opportunity cost of spending money is
investing and saving are the same things false
Liquidity savings refers to availability of your funds on short notice
The ultimate purpose of financial planning is to reach important goals and to achieve some sense of financial security. true
Wants are those items you must have to survive. false
Auto insurance premiums are higher for young single males than for most other drivers true
Variable expenses are those that all of the above
Real estate is among the safest investments for beginning investors. false
an objective a person wants to attain goal
person named by the policyholder to receive the death benefit of an insurance policy beneficiary
The chief advantage of a budget is can help you make the most of your money and avoid financial problems
A savings plan consists of all of the following except opening a credit card account
a savings depository owned by the depositors that divides the profits among depositors in the form of dividends mutual savings bank
A chief advantage of using credit is the opportunity to use goods and services while paying for them. true
an arrangement that allows consumers to buy goods or services and pay for them later credit
An investment portfolio is the collection of stocks, bonds, and other securities a person owns. true
a for-profit financial institution that receives and pays dividends on depositors’ savings, make mortgage loans, and offers most of the services commercial banks offer savings and loan association
the stages of change a family passes through from formation to aging family life cycle
a payment in exchange for an employee’s labor or services wage
a nonprofit financial cooperative owned by and operated for the benefit of its members; it accepts deposits, makes loans, and provides other services credit union
Possessing credit cards tempts many people to spend more than they can afford. true
Which of the following is not an advantage of checking accounts? high interest on balances
Credit is available most readily to people with a good credit rating
A consumer should check out his or her credit rating periodically to be sure the information on file is correct
the process of organizing and utilizing resources to accomplish predetermined objectives management
When planning the use of resources, it is important to consider that resources are all of the above
Money and time are examples of human resources. false
a record of checks, deposits, and charges on a checking account bank statement
The amount you pay to use credit depends on all of the following except reason for using credit
Gross income is also called “take-home pay”. false
No matter what your financial situation, it is desirable to begin a savings program and insure against financial risks early in life. true
property that a borrower promises to give up in case of default collateral
the understanding of the basic knowledge and skills needed to manage financial resources financial literacy
Goals are usually closely related to values. true
A bank statement provides a record of all the following except outstanding checks
Key sources of state and local tax revenue include all of the following except social security tax
An example of a need is food
payment for work that is expressed as an annual figure salary
You can damage a good credit rating by ignoring bills you cannot pay until the creditors take collection action
Simple interest makes money grown more quickly than compound interest. false
The Form W-4 determines the amount of payroll deductions employers should withhold from your paycheck
In managing your personal affairs, it is essential to develop a workable system for keeping financial and legal records and documents. true
Homeowner’s insurance generally provides liability and property protection. true
the federal government’s basic program for providing income when earnings are reduced or stopped because of retirement, serious illness or injury, or death social security
Spending on education is one of the top three items on the federal budget. false
The decision-making process involves all except getting advice from at least five friends
IRA’s offer consumers the opportunity to make tax deferred contributions to a retirement fund. true
Acknowledging a serious financial problem is one of the key steps in coping with it. true
The primary function of a financial institution is the safekeeping of consumer savings. false
Credit is more costly than using cash. true
An overdraft is a check that is not included on your bank statement. false
The deductible on a health insurance claim is the amount the patient must pay before the insurer makes any payments
A good choice for a consumer who writes a large number of checks and can keep the required minimum amount of money in the account at all times would be a ? checking account basic
An emergency fund should contain enough money to cover two months of living expenses. false
a bank owned by stockholders and organized to receive, transfer, and lend money to individuals commercial bank
Fixed expenses include installment payments, insurance premiums, and rent
All of the following are strategies for managing risk except contraction
Depreciation is an increase in the value of property or belongings. false
The Form W-2 determines how much tax was withheld from your paycheck last year
Money is a limited resource. true
amount of money paid to an insurance company on a regular basis for a policy premium
a savings account that pays interest and allows you to make deposits and withdrawals regular savings account
A living will is a statement of instructions you wish to be followed if you become unable to make decisions on your own behalf. true
a savings account that pays a higher interest rate, but usually requires a minimum balance and has limited check writing privileges money market deposit account
the idea that an action should be taken or a purchase be made only if the benefits are at least as great as the costs cost benefit principle
The amount of taxes withheld from paychecks depends on the amount earned and the number of allowances claimed. true
Long-term liabilities include the unpaid amount of a home mortgage
The main purpose of life insurance is to protect dependents from loss of income and other expenses after the death of the insured person. true
any form of money a person receives from various sources income
a measure of the likelihood that something will be lost risk
An advantage of owning preferred stock over common stock in a company is a first claim on company assets in case of bankruptcy, after creditors are paid
A sound credit rating is an important financial asset. true
Interest earnings are considered taxable income. true
the amount borrowed on a loan principal
Categories
Finance Flashcards

Finance Chapter 8

Which one of the following statements is correct? Assume cash flows are conventional. A. The profitability index will be greater than 1.0 when the net present value is negative.B. If the IRR exceeds the required return, the profitability index will be less than 1.0.C. Projects with conventional cash flows have multiple internal rates of return.D. If two projects are mutually exclusive, you should select the project with the shortest payback period.E. When the internal rate of return is greater than the required return, the net present value is positive. E. When the internal rate of return is greater than the required return, the net present value is positive.
Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. What term best describes the relationship between Project A and Project B? Mutually Exclusive
Which one of the following statements is correct?A. If the initial cost of a project is increased, the net present value of that project will also increase.B. The net present value is positive when the required return exceeds the internal rate of return.C. If the internal rate of return equals the required return, the net present value will equal zero.D. Net present value is equal to an investment’s cash inflows discounted to today’s dollars.E. The net present value is a measure of profits expressed in today’s dollars. C. If the internal rate of return equals the required return, the net present value will equal zero.
What is most closely related to the net present value profile? IRR
The net present value: decreases as the required rate of return increases.
The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following?A. The initial cash flow is negative.B. The investment is mutually exclusive with another investment of a different size.C. One of the time periods within the investment period has a cash flow equal to zero.D. The investment has cash inflows that occur after the required payback period.E. The cash flows are conventional. B. The investment is mutually exclusive with another investment of a different size.
The internal rate of return is the: discount rate that results in a zero net present value for the project.
If an investment is producing a return that is equal to the required return, the investment’s net present value will be: zero
Which one of the following indicates that a project is expected to create value for its owners?A. Profitability index less than 1.0B. Payback period greater than the requirementC. Internal rate of return that is less than the requirementD. Positive average accounting rate of returnE. Positive net present value E. Positive net present value
Which one of the following statements is correct?A. The payback rule states that you should accept a project if the payback period is less than one year.B. A longer payback period is preferred over a shorter payback period.C. The payback rule is biased in favor of long-term projects.D. The payback period ignores the time value of money.E. The payback period considers the timing and amount of all of a project’s cash flows. D. The payback period ignores the time value of money.
Categories
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