Question 1

Art's Boutique has sales of £640,000 and costs of £480,000.Interest expense is £40,000 and depreciation is £60,000.The tax rate is 34%.What is the net income?

Accepted Answer

A) £20,400 
B) £39,600 
C) £50,400 
D) £79,600 
E) £99,600 
A) £20,400 
B) £39,600 
C) £50,400 
D) £79,600 
E) £99,600

Question 2

What is a liquid asset and why is it necessary for a ﬁrm to maintain a reasonable level of liquid assets?

Accepted Answer

Liquid assets are those that c

Question 3

What is the cash ﬂow to shareholders for 2014?

Accepted Answer

A) €408 
B) €417 
C) €452 
D) €482 
E) €503 
A) €408 
B) €417 
C) €452 
D) €482 
E) €503

Question 4

Fixed assets can be comprised of both tangible and intangible assets.Intangible assets can be:

Accepted Answer

A) Equipment. 
B) Patents, copyrights, branding and goodwill. 
C) Cash 
D) Land 
E) Property 
A) Equipment. 
B) Patents, copyrights, branding and goodwill. 
C) Cash 
D) Land 
E) Property

Question 5

Calculate net income based on the following information.Sales are £250, cost of goods sold is £160, depreciation expense is £35, interest paid is £20, and the tax rate is 34%.

Accepted Answer

A) £11.90 
B) £23.10 
C) £35.00 
D) £36.30 
E) £46.20 
A) £11.90 
B) £23.10 
C) £35.00 
D) £36.30 
E) £46.20

Question 6

What is the operating cash ﬂow for 2014?

Accepted Answer

A) £520 
B) £800 
C) £1,015 
D) £1,110 
E) £1, 390 
A) £520 
B) £800 
C) £1,015 
D) £1,110 
E) £1, 390

Question 7

Interpret, in words, what cash ﬂow of the ﬁrm represents by discussing operating cash ﬂow, changes in net working capital, and additions to non-current assets.

Accepted Answer

Operating cash ﬂow is the cash ﬂow a ﬁrm

Question 8

Explain why the income statement is not a good representation of cash ﬂow.

Accepted Answer

Most income statements contain some nonc

Question 9

What is the operating cash ﬂow for 2014?

Accepted Answer

A) €143 
B) €297 
C) €325 
D) €353 
E) €367 
A) €143 
B) €297 
C) €325 
D) €353 
E) €367

Question 10

According to International Accounting Standards, revenue is recognized as income when:

Accepted Answer

A) a contract is signed to perform a service or deliver a good. 
B) the transaction is complete and the goods or services are delivered. 
C) payment is requested. 
D) income taxes are paid. 
E) All of the above. 
A) a contract is signed to perform a service or deliver a good. 
B) the transaction is complete and the goods or services are delivered. 
C) payment is requested. 
D) income taxes are paid. 
E) All of the above.

Question 11

Liquidity is:

Accepted Answer

A) a measure of the use of debt in a ﬁrm's capital structure. 
B) equal to current assets minus current liabilities. 
C) equal to the market value of a ﬁrm's total assets minus its current liabilities. 
D) valuable to a ﬁrm even though liquid assets tend to be less proﬁtable to own. 
E) generally associated with intangible assets. 
A) a measure of the use of debt in a ﬁrm's capital structure. 
B) equal to current assets minus current liabilities. 
C) equal to the market value of a ﬁrm's total assets minus its current liabilities. 
D) valuable to a ﬁrm even though liquid assets tend to be less proﬁtable to own. 
E) generally associated with intangible assets.

Question 12

Sometimes when businesses are critically delinquent on their tax liabilities, the tax authority comes in and literally seizes the business by chasing all of the employees out of the building and changing the locks.What does this tell you about the importance of taxes relative to our discussion of cash ﬂow? Why might a business owner want to avoid such an occurrence?

Accepted Answer

Taxes must be paid in cash, and in this

Question 13

According to International Accounting Standards, costs are:

Accepted Answer

A) recorded as incurred. 
B) recorded when paid. 
C) matched with revenues. 
D) matched with production levels. 
E) expensed as management desires. 
A) recorded as incurred. 
B) recorded when paid. 
C) matched with revenues. 
D) matched with production levels. 
E) expensed as management desires.

Question 14

A(n) ____ asset is one which can be quickly converted into cash without signiﬁcant loss in value.

Accepted Answer

A) current 
B) non-current 
C) intangible 
D) liquid 
E) illiquid 
A) current 
B) non-current 
C) intangible 
D) liquid 
E) illiquid

Question 15

Your _____ tax rate is the amount of tax payable on the next taxable euro you earn.

Accepted Answer

A) deductible 
B) residual 
C) total 
D) average 
E) marginal 
A) deductible 
B) residual 
C) total 
D) average 
E) marginal

Question 16

What is the cash ﬂow to creditors for 2014?

Accepted Answer

A) -€170 
B) -€35 
C) €135 
D) €170 
E) €205 
A) -€170 
B) -€35 
C) €135 
D) €170 
E) €205

Question 17

Which of the following accounts are included in shareholders' equity? 
I.Interest paid.
II.Retained earnings.
III.Capital surplus.
IV.Non-current liabilities.

Accepted Answer

A) I and II only. 
B) II and IV only. 
C) I and IV only. 
D) II and III only. 
E) I and III only. 
A) I and II only. 
B) II and IV only. 
C) I and IV only. 
D) II and III only. 
E) I and III only.

Question 18

What is the amount of the non-cash expenses for 2014?

Accepted Answer

A) £570 million. 
B) £630 million. 
C) £845 million. 
D) £1,370 million. 
E) £2,000 million. 
A) £570 million. 
B) £630 million. 
C) £845 million. 
D) £1,370 million. 
E) £2,000 million.

Question 19

What is the change in the net working capital from 2013 to 2014?

Accepted Answer

A) £1,235 million. 
B) £1,035 million. 
C) £1,335 million. 
D) £3,405 million. 
E) £4,740 million. 
A) £1,235 million. 
B) £1,035 million. 
C) £1,335 million. 
D) £3,405 million. 
E) £4,740 million.

Question 20

Noncash items refer to:

Accepted Answer

A) the credit sales of a ﬁrm. 
B) the trade payables of a ﬁrm. 
C) the costs incurred for the purchase of intangible non-current assets. 
D) expenses charged against revenues that do not directly affect cash ﬂow. 
E) all accounts on the statement of ﬁnancial position other than cash on hand. 
A) the credit sales of a ﬁrm. 
B) the trade payables of a ﬁrm. 
C) the costs incurred for the purchase of intangible non-current assets. 
D) expenses charged against revenues that do not directly affect cash ﬂow. 
E) all accounts on the statement of ﬁnancial position other than cash on hand.

Exam 3: Financial Statement Analysis

Art's Boutique has sales of £640,000 and costs of £480,000.Interest expense is £40,000 and depreciation is £60,000.The tax rate is 34%.What is the net income?

What is a liquid asset and why is it necessary for a ﬁrm to maintain a reasonable level of liquid assets?

What is the cash ﬂow to shareholders for 2014?

Fixed assets can be comprised of both tangible and intangible assets.Intangible assets can be:

Calculate net income based on the following information.Sales are £250, cost of goods sold is £160, depreciation expense is £35, interest paid is £20, and the tax rate is 34%.

What is the operating cash ﬂow for 2014?

Interpret, in words, what cash ﬂow of the ﬁrm represents by discussing operating cash ﬂow, changes in net working capital, and additions to non-current assets.

Explain why the income statement is not a good representation of cash ﬂow.

What is the operating cash ﬂow for 2014?

According to International Accounting Standards, revenue is recognized as income when:

Liquidity is:

According to International Accounting Standards, costs are:

A(n) ____ asset is one which can be quickly converted into cash without signiﬁcant loss in value.

Your _____ tax rate is the amount of tax payable on the next taxable euro you earn.

What is the cash ﬂow to creditors for 2014?

Which of the following accounts are included in shareholders' equity? I.Interest paid. II.Retained earnings. III.Capital surplus. IV.Non-current liabilities.

What is the amount of the non-cash expenses for 2014?

What is the change in the net working capital from 2013 to 2014?

Noncash items refer to:

Introduction to Corporate Finance

Corporate Governance

Discounted Cash Flow Valuation

Bond, Equity and Firm Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

Factor Models and the Arbitrage Pricing Theory

Risk, Cost of Capital and Capital Budgeting

Efficient Capital Markets and Behavioural Finance

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Equity Financing

Debt Financing

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Short-Term Capital Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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