Question 1

Which of the following statements is CORRECT?

Accepted Answer

A) Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible. 
B) Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2008 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. 
C) The maximum federal tax rate on corporate income in 2008 was 50%. 
D) Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings.The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock.Both of these costs are deductible from income when calculating income for tax purposes. 
E) The maximum federal tax rate on personal income in 2008 was 50%. 
A) Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible. 
B) Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2008 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. 
C) The maximum federal tax rate on corporate income in 2008 was 50%. 
D) Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings.The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock.Both of these costs are deductible from income when calculating income for tax purposes. 
E) The maximum federal tax rate on personal income in 2008 was 50%.

Question 2

Consider the balance sheet of Wilkes Industries as shown below.Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.
Cash $50,000 Accounts payable $100,000Inventory $200,000 Accruals $100,000Accounts receivable $250,000 Total CL $200,000Total CA $500,000 Debt $200,000Net fixed assets $900,000 Common stock $200,000 Retained earnings $800,000Total assets $1,400,000 Total L & E $1,400,000. Advise the options to buy or not to buy?

Accepted Answer

A) True 
 B)False

Question 3

Meric Mining Inc.recently reported $15,000 of sales, $7,500 of operating costs other than depreciation, and $1,200 of depreciation.The company had no amortization charges, it had outstanding $6,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm's net income after taxes? Meric uses the same depreciation expense for tax and stockholder reporting purposes.

Accepted Answer

A) $3,284.55 
B) $3,457.42 
C) $3,639.39 
D) $3,830.94 
E) $4,022.48 
A) $3,284.55 
B) $3,457.42 
C) $3,639.39 
D) $3,830.94 
E) $4,022.48

Question 4

year Roussakis Company's operations provided a negative net cash flow, yet the cash shown on its balance sheet increased.Which of the following statements could explain the increase in cash, assuming the company's financial statements were prepared under generally accepted accounting principles?

Accepted Answer

A) The company repurchased some of its common stock. 
B) The company dramatically increased its capital expenditures. 
C) The company retired a large amount of its long-term debt. 
D) The company sold some of its fixed assets. 
E) The company had high depreciation expenses. 
A) The company repurchased some of its common stock. 
B) The company dramatically increased its capital expenditures. 
C) The company retired a large amount of its long-term debt. 
D) The company sold some of its fixed assets. 
E) The company had high depreciation expenses.

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A) The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks." 
B) The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP). 
C) The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SE
C) . 
D) If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow. 
E) The income statement for a given year, say 2007, is designed to give us an idea of how much the firm earned during that year. 
A) The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks." 
B) The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles (GAAP). 
C) The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission (SE
C) . 
D) If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported net cash flow. 
E) The income statement for a given year, say 2007, is designed to give us an idea of how much the firm earned during that year.

Question 6

12/31/10, Heaton Industries Inc.reported retained earnings of $675,000 on its balance sheet, and it reported that it had $172,500 of net income during the year.On its previous balance sheet, at 12/31/09, the company had reported $555,000 of retained earnings.No shares were repurchased during 2010.How much in dividends did Heaton pay during 2010?

Accepted Answer

A) $47,381 
B) $49,875 
C) $52,500 
D) $55,125 
E) $57,881 
A) $47,381 
B) $49,875 
C) $52,500 
D) $55,125 
E) $57,881

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash. 
B) Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity. 
C) In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. 
D) In the statement of cash flows, depreciation charges are reported as a use of cash. 
E) In the statement of cash flows, a decrease in inventories is reported as a use of cash. 
A) In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash. 
B) Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity. 
C) In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. 
D) In the statement of cash flows, depreciation charges are reported as a use of cash. 
E) In the statement of cash flows, a decrease in inventories is reported as a use of cash.

Question 8

Wells Water Systems recently reported $8,250 of sales, $4,500 of operating costs other than depreciation, and $950 of depreciation.The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 35%.In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to spend $750 to buy new fixed assets and to invest $250 in net operating working capital.How much free cash flow did Wells generate?

Accepted Answer

A) $1,770.00 
B) $1,858.50 
C) $1,951.43 
D) $2,049.00 
E) $2,151.45 
A) $1,770.00 
B) $1,858.50 
C) $1,951.43 
D) $2,049.00 
E) $2,151.45

Question 9

interest and dividends paid by a corporation are considered to be deductible operating expenses, hence they decrease the firm's tax liability.

Accepted Answer

A) True 
 B)False

Question 10

Corporation has the following balance sheet.How much net operating working capital does the firm have?

Accepted Answer

A) $54.00 
B) $60.00 
C) $66.00 
D) $72.60 
E) $79.86 
A) $54.00 
B) $60.00 
C) $66.00 
D) $72.60 
E) $79.86

Question 11

Zumbahlen Inc.has the following balance sheet.How much total operating capital does the firm have?

Accepted Answer

A) $114.00 
B) $120.00 
C) $126.00 
D) $132.30 
E) $138.92 
A) $114.00 
B) $120.00 
C) $126.00 
D) $132.30 
E) $138.92

Question 12

Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's operating net cash flow increased, yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Accepted Answer

A) The company cut its dividend. 
B) The company made a large investment in a profitable new plant. 
C) The company sold a division and received cash in return. 
D) The company issued new common stock. 
E) The company issued new long-term debt. 
A) The company cut its dividend. 
B) The company made a large investment in a profitable new plant. 
C) The company sold a division and received cash in return. 
D) The company issued new common stock. 
E) The company issued new long-term debt.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

A) The balance sheet for a given year, say 2008, is designed to give us an idea of what happened to the firm during that year. 
B) The balance sheet for a given year, say 2008, tells us how much money the company earned during that year. 
C) The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP). 
D) For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet. 
E) A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. 
A) The balance sheet for a given year, say 2008, is designed to give us an idea of what happened to the firm during that year. 
B) The balance sheet for a given year, say 2008, tells us how much money the company earned during that year. 
C) The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP). 
D) For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet. 
E) A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last.

Question 14

Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes.

Accepted Answer

A) Companies' net operating profits after taxes (NOPAT) would decline. 
B) Companies' physical stocks of fixed assets would increase. 
C) Companies' net cash flows would increase. 
D) Companies' cash positions would decline. 
E) Companies' reported net incomes would decline. 
A) Companies' net operating profits after taxes (NOPAT) would decline. 
B) Companies' physical stocks of fixed assets would increase. 
C) Companies' net cash flows would increase. 
D) Companies' cash positions would decline. 
E) Companies' reported net incomes would decline.

Question 15

operating profit after taxes (NOPAT) is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

Accepted Answer

A) True 
 B)False

Question 16

Hunter Manufacturing Inc.'s December 31, 2009 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding.During 2010, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/10, assuming that Hunter neither issued nor retired any common stock during 2010?

Accepted Answer

A) $20.90 
B) $22.00 
C) $23.10 
D) $24.26 
E) $25.47 
A) $20.90 
B) $22.00 
C) $23.10 
D) $24.26 
E) $25.47

Question 17

estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Accepted Answer

A) True 
 B)False

Question 18

retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends.Retained earnings are kept in cash or near cash accounts and, thus, these cash accounts, when added together, will always be equal to the firm's total retained earnings.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is CORRECT?

Accepted Answer

A) The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. 
B) The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit. 
C) The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital. 
D) The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock. 
E) The statement of cash flows shows how much the firm's cash--the total of currency, bank deposits, and short-term liquid securities (or cash equivalents)--increased or decreased during a given year. 
A) The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. 
B) The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit. 
C) The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital. 
D) The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock. 
E) The statement of cash flows shows how much the firm's cash--the total of currency, bank deposits, and short-term liquid securities (or cash equivalents)--increased or decreased during a given year.

Question 20

Barnes' Brothers has the following data for the year ending 12/31/10: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100.Barnes' weighted average cost of capital is 10%.What is its economic value added (EVA)?

Accepted Answer

A) $399.11 
B) $420.11 
C) $442.23 
D) $465.50 
E) $490.00 
A) $399.11 
B) $420.11 
C) $442.23 
D) $465.50 
E) $490.00

Which of the following statements is CORRECT?

year Roussakis Company's operations provided a negative net cash flow, yet the cash shown on its balance sheet increased.Which of the following statements could explain the increase in cash, assuming the company's financial statements were prepared under generally accepted accounting principles?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

interest and dividends paid by a corporation are considered to be deductible operating expenses, hence they decrease the firm's tax liability.

Corporation has the following balance sheet.How much net operating working capital does the firm have?

Zumbahlen Inc.has the following balance sheet.How much total operating capital does the firm have?

Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's operating net cash flow increased, yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Which of the following statements is CORRECT?

operating profit after taxes (NOPAT) is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Which of the following statements is CORRECT?

Overview

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters

Exam 2: Statements, CF, Taxes

Which of the following statements is CORRECT?

year Roussakis Company's operations provided a negative net cash flow, yet the cash shown on its balance sheet increased.Which of the following statements could explain the increase in cash, assuming the company's financial statements were prepared under generally accepted accounting principles?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

interest and dividends paid by a corporation are considered to be deductible operating expenses, hence they decrease the firm's tax liability.

Corporation has the following balance sheet.How much net operating working capital does the firm have?

Zumbahlen Inc.has the following balance sheet.How much total operating capital does the firm have?

Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's operating net cash flow increased, yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Which of the following statements is CORRECT?

operating profit after taxes (NOPAT) is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Which of the following statements is CORRECT?

Overview

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters