Exam 2: Statements, CF, Taxes

year Tiemann Technologies reported $10,500 of sales, $6,250 of operating costs other than depreciation, and $1,300 of depreciation.The company had no amortization charges, it had $5,000 of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%.This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $750.By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.

Which of the following statements is CORRECT?

Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined.Which of the following could explain this performance?

Which of the following statements is CORRECT?

operating working capital is equal to operating current assets minus operating current liabilities.

start-up firm is making an initial investment in new plant and equipment.Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years.If the legislation becomes law, which of the following would occur in the year following the change?

primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows.

Inc.had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT) = $700; Total assets = $3,000; and Total operating capital = $2,000.Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT) = $925; Total assets = $2,600; and Total operating capital = $2,500.How much free cash flow did the firm generate during the just-completed year?

year, Tucker Technologies had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets.All of these assets were required in operations.The firm's current liabilities consisted of $475,000 of accounts payable, $375,000 of 6% short-term notes payable to the bank, and $150,000 of accrued wages and taxes.Its remaining capital consisted of long-term debt and common equity.What was NNR's total investor-provided operating capital?

current cash flow from existing assets is highly relevant to the investor.However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Nantell Corporation just purchased an expensive piece of equipment.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000.The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share.By how much do the firm's market and book values per share differ?

time dimension is important in financial statement analysis.The balance sheet shows the firm's financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects changes in the firm's accounts over that period of time.

Which of the following items is NOT included in current assets?

Which of the following statements is CORRECT?

security analyst obtained the following information from Prestopino Products' financial statements: • Retained earnings at the end of 2009 were $700,000, but retained earnings at the end of 2010 had declined to $320,000. • The company does not pay dividends. • The company's depreciation expense is its only non-cash expense; it has no amortization charges. • The company has no non-cash revenues. • The company's net cash flow (NCF)On the basis of this information, which of the following statements is CORRECT?

retained earnings account on the balance sheet does not represent cash.Rather, it represents part of stockholders' claims against the firm's existing assets.This implies that retained earnings are in fact stockholders' reinvested earnings.

Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%.How much was the firm's taxable income, or earnings before taxes (EBT)?

its 2010 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year.Assuming that no earnings restatements were issued, which of the following statements is CORRECT?