Exam 2: Essential Concepts in Finance: Part A

Return on assets can best be explained as:

Return on equity is most accurately described as a measure of:

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Average Collection Period (365 day year) is:

We always add back common stock dividends paid to the balance sheet item retained earnings. Common stock dividends were paid out from the net income because they were paid to the owners and as such are considered residual profits. Explain whether you agree or disagree with this statement.

Given the following information, prepare an income statement for year ended December 31.

Return on equity represents a measurement of the firm's:

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Market to Book ratio is:

The balancing problem in forecasting refers to which of the following?

A debt/total asset ratio of 75% and a ROE of 12% means:

In the current year Spruce Corp. and Cedar Corp. will have earnings of $150,000 before interest, taxes and amortization. Both companies have $10,000 in interest costs and a tax rate of 40%. Spruce Corp. has amortization expense of $50,000 whereas Cedar Corp. has only $10,000 in amortization expense. a. Calculate the annual net income for each company. b. Calculate annual cash flow for each company. c. Does the the company with the higher net income also have the higher cash flow, if not why is this happening?

A firm expects to have net income of $85,000. If preferred dividends paid are $42,000, common stock dividends paid are $20,000, and shares of common stock outstanding are 10,000, what is the EPS?

Which of the following is a use of cash that would appear on the statement of cash flows?

Explain why preferred stock is a difficult item to classify.

Use the following information to answer the question: The Deluxe Drugs Company (DDC) has provided you with the following financial statement information for 1999: 1999 year end Balance Sheet (in thousands of dollars) -Based on your analysis in the previous question, what additional ratios would you want to look at for Deluxe Drugs?

Use the following information to answer the question: Sales for 2000 are projected to be $25,000; The firm currently uses straight line depreciation; No new equipment purchases are planned for 2000; There will be a 100% earnings distribution for 2000. The current assets, accounts payable, and accrued expenses vary at a constant percent of sales as do COGS and selling expenses. Assume that notes payable is paid off in 2000. -Forecasted total assets for the end of 2000 are:

Net income is $100,000 and preferred dividends paid are $100,000 and common stock dividends paid are $100,000. Beginning retained earnings were $500,000. The ending balance in retained earnings would b:

With respect to forecasting approaches, all but which of the following is a general approach used by financial managers?

The Net Profit Margin represents a measurement of the firm's:

Net income for 2004 was $10,000. It is expected to grow by 20% in 2005. If the dividend payout ratio is 10% of net income, calculate common equity for 2000.

This year your company bought a piece of equipment for $60,000. the Canada Customs and revenue Agency have classified it as a Cl. 8 asset with an allocated capital cost allowance rate of 20%. The company's tax rate is 30%. a) What will be your maximum allowable amortization expense for tax purposes for the year of purchase? What will it be in the second year? b) If your company normally uses straight line depreciation for financial reporting purchases and this asset is to be amortized over 8 years, what amortization expense will appear on the financial statements in year one and year two? c) Will the taxes paid entry in the income statements for the two years be equal to taxes actually paid to the government? If not briefly discuss why.