Deck 17: Projecting Cash Flow and Earnings

Question 1

Which one of the following is the cash flow resulting from the payment of dividends and the issuance or repurchase of equity securities?

A) balance sheet cash flow
B) operating cash flow
C) financing cash flow
D) business cash flow
E) investment cash flow

Answer 1

C

Question 2

Which one of the following is equal to net income expressed as a percentage of total assets?

A) return on equity
B) return on the balance sheet
C) operating yield
D) net yield
E) return on assets

Answer 2

E

Question 3

Which one of the following is the definition of investment cash flow?

A) revenue minus expenses
B) cash flow from the purchases and sales of fixed assets and investments
C) cash flow originating from the issuance of securities
D) cash generated by a firm's normal business activities
E) pre-tax income

Answer 3

B

Question 4

Which one of the following is used to pay dividends or kept as retained earnings by a firm?

A) equity
B) net cash flow
C) revenue
D) net income
E) expense

Question 5

Material nonpublic information is defined as any information that could reasonably be expected to do which one of the following?

A) affect the price of the firm's securities
B) cause great embarrassment to the firm
C) cause one or more of the senior executives of the firm to resign
D) cause the SEC to halt the trading of the firm's securities should that information become public
E) affect the manner in which the firm presents its financial information

Question 6

Which one of the following is an accounting statement that provides information on a firm's revenues and expenses?

A) balance sheet
B) cash budget
C) pro-forma balance sheet
D) income statement
E) cash flow statement

Question 7

Which one of the following is an analysis of a firm's sources and uses of cash over a period of time?

A) income statement
B) pro-forma income statement
C) cash flow statement
D) tax return
E) balance sheet

Question 8

Which one of the following is an ownership interest in a firm?

A) asset
B) expense
C) net income
D) liability
E) equity

Question 9

Which one of the following is income realized in cash form?

A) net income
B) revenue
C) cash flow
D) retained earnings
E) dividends

Question 10

Which one of the following represents the amounts owed by a firm to other parties?

A) assets
B) cash inflows
C) equities
D) liabilities
E) expenses

Question 11

Return on equity is equal to which one of the following?

A) dividend yield divided by total equity
B) retained earnings divided by total equity
C) revenue divided by total equity
D) net income divided by total equity
E) operating cash flow divided by total equity

Question 12

Which one of the following provides information on a firm's assets and liabilities as of a particular date?

A) cash flow statement
B) pro-forma income statement
C) income statement
D) tax return
E) balance sheet

Question 13

Better Products just filed its quarterly report with the SEC.This report is referred to as which one of the following?

A) 10F
B) 10K
C) 10Q
D) EDGAR 10
E) 10FD

Question 14

Regulation FD requires companies to do which one of the following when disclosing material non-public information?

A) advise the SEC 7 working days prior to such disclosure
B) disclose the information without preference to any party or parties
C) only disclose the information to professional analysts
D) only disclose the information after a 7-day advance notice of an announcement
E) disclose the information only after a 24-hour delay

Question 15

How frequently do corporations file 10K reports with the SEC?

A) monthly
B) quarterly
C) semi-annually
D) annually
E) only when the firm engages in a merger or an acquisition

Question 16

Income and expense items NOT realized in cash form are called which one of the following?

A) deductible expenses
B) noncash items
C) intangible assets
D) operating income
E) financing activities

Question 17

Which one of the following is the definition of operating cash flow?

A) revenue minus expenses
B) cash realized from the sale of assets
C) cash flow originating from the issuance of securities
D) cash generated by a firm's normal business activities
E) pre-tax income

Question 18

Pro forma financial statements are statements based on which one of the following?

A) projected future income, cash flows, and other non-cash items
B) historical revenue and expenses
C) historical asset and liability values
D) current period cash flows
E) current period revenues and expenses

Question 19

Which one of the following is defined as anything a firm owns that has value?

A) equity
B) asset
C) liability
D) cash inflow
E) cash outflow

Question 20

You are interested in reviewing the information corporations file with the SEC.Which one of the following is the archive of these filings?

A) SAMSON
B) REG FD
C) EDGAR
D) Nonpublic information files
E) ROA filings

Question 21

Which one of the following is the primary difference between operating cash flow and net income?

A) interest expense
B) indirect costs
C) taxes
D) fixed costs
E) depreciation

Question 22

Which one of the following ratios tells you the amount of assets a firm needs to generate $1 in sales?

A) capital intensity ratio
B) return on assets
C) asset turnover rate
D) profit margin
E) earnings ratio

Question 23

Which of the following are current assets?
I)inventory
II)goodwill
III)fixed assets
IV)cash

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

Question 24

The costs of materials used in the production of a product are recorded in which one of the following accounts?

A) net sales
B) fixed costs
C) operating income
D) depreciation
E) cost of goods sold

Question 25

Which one of the following is a tangible fixed asset?

A) cash
B) equipment
C) accounts receivable
D) right
E) inventory

Question 26

Which one of the following is an intangible fixed asset?

A) accounts receivable
B) patent
C) inventory
D) equipment
E) building

Question 27

Which one of the following statements is correct?

A) Pretax income is equal to gross profit minus interest expense.
B) Gross profit is equal to sales minus costs of goods sold and depreciation.
C) Operating expenses are indirect costs.
D) Costs that vary directly with production are classified as operating expenses.
E) The change in retained earnings is equal to net income plus dividends paid.

Question 28

Sales minus cost of goods sold are equal to which one of the following?

A) net sales
B) operating income
C) gross profit
D) pretax income
E) net income

Question 29

Which one of the following is a financial planning method wherein some account values vary in relation to expected sales?

A) common size approach
B) linear method
C) percentage of net income method
D) adjusted sales method
E) percentage of sales approach

Question 30

Which of the following are classified as equity accounts on a balance sheet?
I)goodwill
II)paid in capital
III)net income
IV)retained earnings

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

Question 31

Which one of the following will increase the investment cash flow?

A) purchase of an investment
B) issuing new shares of stock
C) repaying a bond issue
D) sale of a building
E) payment of interest on a bond issue

Question 32

Sander's Auto recently purchased Auto Express for $9.8 million.Auto Express had a market value of $9.5 million at the time of acquisition.The additional $0.3 million that Sander's Auto paid for Auto Express will be treated on Sander's Auto's balance sheet as which type of account?

A) patent
B) depreciation
C) licenses
D) goodwill
E) acquisition expense

Question 33

Which one of the following is NOT a financing cash flow according to standard accounting practice?

A) new issue of stock
B) repurchase of stock
C) new issue of debt
D) interest payments
E) dividend payments

Question 34

Which one of the following means of communication do most firms use for announcements in order to comply with Regulation FD?

A) TV spots
B) e-mail alerts
C) public newspapers
D) radio
E) analyst networks

Question 35

Sweet Tree Cookies has current net income of $268,000 of which $110,000 was paid out in dividends.The remaining $158,000 will be shown in which account on the firm's financial statements for next year?

A) long-term debt
B) common stock
C) net income
D) retained earnings
E) paid in surplus

Question 36

Which one of the following is NOT included in operating income?

A) sales
B) depreciation
C) interest expense
D) cost of goods sold
E) other operating expenses

Question 37

Wilson's Clothing has a loan payable to a bank which is due 18 months from now.How is this loan classified on the firm's financial statements?

A) fixed asset
B) current liability
C) long-term debt
D) equity
E) expense

Question 38

Which of the following reports are always included in a 10K filing with the SEC?
I)statement of cash flows
II)balance sheet
III)pro-forma statement
IV)income statement

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

Question 39

Net income is equal to which one of the following?

A) operating income plus interest expense minus taxes
B) gross profit minus depreciation and interest expense
C) pretax income plus income taxes
D) dividends plus the change in retained earnings
E) pretax income minus taxes and dividends

Question 40

The summation of the operating,investment,and financing cash flows for a stated period of time must equal which one of the following for the same time period?

A) net income
B) total assets
C) ending cash balance
D) change in the cash balance
E) taxable income

Question 41

A firm has $4,200 of cash,equipment worth $46,300,inventory of $38,400,a building worth $130,500,and $21,500 of accounts receivable.What is the value of the total fixed assets?

A) $176,800
B) $203,500
C) $196,400
D) $223,100
E) $226,900

Question 42

A firm maintains a constant dividend payout ratio of 0.45.What must the plowback ratio be?

A) 1 + 0.45
B) 1 - 0.45
C) 1 × 0.45
D) 1 / 0.45
E) 0.45

Question 43

Which one of the following statements related to book value per share (BVPS)is correct?

A) BVPS is equal to total assets divided by the number of shares outstanding.
B) An increase in the market value of a firm's fixed assets will increase the firm's BVPS.
C) The payment of a dividend increases BVPS.
D) BVPS is equal to the market price of a share of stock.
E) The issuance of new shares at market value may increase the BVPS.

Question 44

A firm has $3,200 of cash,equipment worth $41,000,inventory of $15,500,$13,200 worth of patents,and $11,300 of accounts receivable.What is the value of the total current assets?

A) $1,500
B) $14,700
C) $16,700
D) $30,000
E) $72,900

Question 45

The Cruise Ship Co.has taxable income of $4,000,000.The company paid out $550,000 in interest expense.The tax rate is 35 percent and the dividend payout ratio is 30 percent.What is the amount that was paid out in dividends?

A) $420,000
B) $550,000
C) $682,500
D) $780,000
E) $980,000

Question 46

Which of the following affect the earnings per share?
I)decrease in interest expense
II)share repurchase
III)increase in tax rates
IV)preferred stock dividend

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

Question 47

GH Enterprises has annual sales of $5.2 million,depreciation of $350,000,operating expenses of $390,000,and cost of goods sold of $3.1 million.What is the gross profit?

A) $460,000
B) $850,000
C) $2,100,000
D) $2,650,000
E) $3,710,000

Question 48

Which one of the following is most apt to be constant given the percentage of sales approach to creating pro forma statements?

A) book value per share
B) gross margin
C) earnings per share
D) return on equity
E) cash flow per share

Question 49

Which one of the following is generally used as the basis for computing the cash flow per share?

A) operating cash flow
B) investment cash flow
C) financing cash flow
D) net cash increase
E) retained cash earnings

Question 50

The management of the Downtown Athletics recently voted to limit any future borrowing or sales of company stock.By taking this action,management has effectively done which one of the following?

A) increased the profit margin
B) lowered income taxes
C) maximized future dividends
D) maximized future retained earnings
E) limited future growth

Question 51

Young Industries has a 3-year bank loan of $85,000,a 6-month note payable of $6,000,a $67,300 mortgage,and accounts payable of $22,500.What is the amount of the total current liabilities? (Ignore the current portion of any long-term debt.)

A) $5,000
B) $16,200
C) $28,500
D) $64,200
E) $117,000

Question 52

Which two of the following are generally used to fund the external financing need?
I)sale of fixed assets
II)increase in accounts payable
III)issuance of long-term debt
IV)sale of equity securities

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

Question 53

ABC Construction,Inc.has buildings and equipment of $315,600,long-term debt of $154,700,accounts payable of $52,000,cash of $9,800,accounts receivable of $18,300,inventory of $62,000,and retained earnings of $147,000.What is the total equity of the firm?

A) $5,200
B) $97,000
C) $147,000
D) $199,000
E) $228,000

Question 54

Which one of the following will increase the return on equity?

A) increase in the corporate tax rate
B) decrease in fixed costs
C) issuance of debt to purchase equipment
D) increase in variable costs per unit
E) decrease in net sales

Question 55

Which one of the following is most apt to vary directly with sales?

A) current assets
B) long-term debt
C) shareholders' equity
D) paid-in capital
E) retained earnings

Question 56

AccentJewelry,Inc.has annual sales of $4.8 million and a gross profit margin of 55 percent.The operating expenses are $510,550 and depreciation is $160,250.Interest expense is $80,000 and the tax rate is 35 percent.What is the net income?

A) $1,002,980
B) $1,084,818
C) $1,227,980
D) $1,589,200
E) $2,385,000

Question 57

Behrend Corporation has annual sales of $4.5 million,depreciation of $425,000,operating expenses of $679,000,cost of goods sold of $2.3 million,and interest expense of $230,000.What is the operating income?

A) $1,096,000
B) $2,036,000
C) $3,525,000
D) $4,000,000
E) $4,811,000

Question 58

A decrease in which one of the following will increase the return on assets?

A) long-term debt
B) sales
C) inventory
D) retained earnings
E) dividends paid

Question 59

Which one of the following accounts is least likely to vary directly with the level of sales?

A) accounts payable
B) inventory
C) cost of goods sold
D) interest expense
E) accounts receivable

Question 60

A decrease in which one of the following will increase the gross margin?

A) taxes
B) sales
C) depreciation
D) variable costs
E) fixed costs

Question 61

A firm has net sales of $65,000,operating expenses of $21,300,depreciation of $5,000,cost of goods sold of $36,500,and interest expense of $4,500.What is the operating margin?

A) -2.8 percent
B) 2.6 percent
C) 3.4 percent
D) 9.2 percent
E) 10.3 percent

Question 62

A firm has net sales of $35,000,operating expenses of $6,100,depreciation of $1,700,and cost of goods sold of $18,300.What is the gross margin?

A) 31.1 percent
B) 35.4 percent
C) 47.7 percent
D) 52.9 percent
E) 59.2 percent

Question 63

HBB Manufacturing,Inc.has 275,000 shares of stock outstanding.The firm paid out $275,000 in dividends,$195,000 in interest,and added $150,000 to retained earnings for the year.What is the amount of the earnings per share?

A) $0.70
B) $0.78
C) $1.55
D) $1.63
E) $1.76

Question 64

Children's Books,Inc.has net income of $50,000 and a plowback ratio of 80 percent.There are 22,000 shares of stock outstanding at a market price of $18.64 a share.What is the price-earnings ratio?

A) 6.9
B) 8.2
C) 9.7
D) 11.1
E) 11.6

Question 65

Handy Man Services,Inc.has net income of $525,000.What is the addition to retained earnings if the dividend payout ratio is 40 percent?

A) $123,253
B) $157,250
C) $183,750
D) $221,813
E) $315,000

Question 66

A firm has earnings per share of $3.50 and cash flow per share of $3.84.The price-earnings ratio is 24.1.What is the price-cash flow ratio?

A) 19.8
B) 20.1
C) 22.0
D) 26.0
E) 27.1

Question 67

Sander's Corner Market had annual sales of $426,000 and total assets of $345,000.What is the return on assets if the profit margin is 8 percent?

A) 8.23 percent
B) 9.88 percent
C) 10.62 percent
D) 11.01 percent
E) 12.87 percent

Question 68

For the year,Widgets Manufacturing,Inc.increased its current assets accounts by $45,000,decreased its current liabilities by $37,000,and decreased its fixed assets by $48,000.What is the investment cash flow for the year?

A) -$31,000
B) -$12,000
C) $19,000
D) $31,000
E) $48,000

Question 69

O'Hara's Market has net income of $1.6 million and 525,000 shares of stock outstanding.What is the amount of the dividends per share if the plowback ratio is 60 percent?

A) $0.94
B) $1.07
C) $1.22
D) $1.67
E) $1.98

Question 70

A company has net income of $66,000,a price-earnings ratio of 24.1,and 26,000 shares of stock outstanding.If the price-cash flow ratio is 19,what is the cash flow per share?

A) $2.05
B) $2.34
C) $2.50
D) $2.81
E) $3.22

Question 71

Glassmakers,Inc.purchased $137,600 of new equipment this year and also increased the inventory by $36,800.Thirty-three thousand dollars worth of old equipment was sold.What is the investment cash flow for the year?

A) -$49,300
B) -$98,000
C) -$104,600
D) -$125,500
E) -$133,300

Question 72

Marley Enterprises has financing cash flow of -$45,200 and investment cash flow of $24,500 for the year.The beginning cash balance was $64,200 and the ending cash balance was $55,100.What was the operating cash flow for the period?

A) -$15,500
B) -$9,600
C) -$7,700
D) $8,900
E) $11,600

Question 73

A company has a price-earnings ratio of 21 and a price-cash flow ratio of 12.If the earnings per share are $1.75,what is the cash flow per share?

A) $2.16
B) $2.51
C) $3.06
D) $3.14
E) $3.50

Question 74

Healthy Supplements,Inc.paid $7,300 in interest and $4,300 in dividends for the year.The firm also issued $15,000 worth of new equity securities.What is the amount of the financing cash flow?

A) $2,500
B) $5,200
C) $6,800
D) $7,700
E) $10,700

Question 75

A firm has net income of $22,500 and a book value per share of $3.10.The firm has 30,000 shares of stock outstanding and a price-earnings ratio of 15.9.What is the price-book ratio?

A) 1.7
B) 2.4
C) 2.7
D) 3.8
E) 4.3

Question 76

A firm has a price-cash flow ratio of 12.5 and a price-book value ratio of 7.6.If the cash flow per share is $4.67,what is the book value per share?

A) $2.84
B) $3.55
C) $4.44
D) $6.45
E) $7.68

Question 77

Bay Marina,Inc.has net income of $53,700 and has 30,000 shares of stock outstanding.Similar firms have a price-earnings ratio of 20.Given this,what should the market price of Bay Marina,Inc.stock be per share?

A) $28.91
B) $29.29
C) $30.40
D) $33.91
E) $35.80

Question 78

Green Recycling,Inc.has 150,000 shares of stock outstanding.The firm has total assets of $568,000 and total liabilities of $415,000.The firm's stock is selling for $31 a share.What is the price-book ratio?

A) 22.3
B) 26.5
C) 27.5
D) 30.4
E) 37.8

Question 79

Whole Wheat Farms,Inc.has a net income of $20,000 and a dividend payout ratio of 30 percent.The firm issued $12,000 worth of common stock during the period.The firm has no long-term debt.What is the financing cash flow for the period?

A) $2,500
B) $3,000
C) $6,000
D) $9,000
E) $25,000

Question 80

Wholesale Grocer's has total assets of $580,000 and total liabilities of $375,000.Net sales for the year are $523,000 and the profit margin is 10.5 percent.What is the return on equity?

A) 10.6 percent
B) 26.8 percent
C) 31.2 percent
D) 37.4 percent
E) 44.6 percent