Question 1

Which of the following items on the income statement and balance sheet is least likely to vary spontaneously with sales?

Accepted Answer

A)  cost of goods sold 
B)  accrued expenses 
C)  accounts payable 
D)  plant and equipment

Question 2

Shares outstanding of common stock = 1,000,000 
Shares outstanding of preferred stock = 500,000 
Market price of common stock = $18.
-The Earnings Per Share are:

Accepted Answer

A)  $2.14 
B)  $2.74 
C)  $1.83 
D)  $3.24

Question 3

With respect to preferred stock:

Accepted Answer

A)  it is an obligation and must be paid before debt. 
B)  it is similar to long- term debt. 
C)  shareholders are paid a dividend based on net income. 
D)  the dividends paid are tax deductible to the firm.

Question 4

Producing a sales forecast is primarily a financial task. Commen

Accepted Answer

The answer of Producing a sales forecast is primarily a...

Question 5

Net income is $1,000,000 for the year, EBT is $2,500,000, retained earnings in January were $5,000,000, preferred dividends paid for the year are $100,000, common stock dividends paid for the year are $300,000, and common shares outstanding are 1,000,000. What are end- of- year retained earnings?

Accepted Answer

A)  $5,600,000 
B)  $5,900,000 
C)  $6,000,000 
D)  $7,100,000

Question 6

Which is TRUE about the Canadian tax system?

Accepted Answer

A)  businesses are taxed at the same rate in all of the provinces. 
B)  small businesses tend to pay less taxes per dollar earned than larger businesses. 
C)  corporations cannot claim contributions made to political parties even if they are registered political parties. 
D)  the Canadian government does not use tax incentives to encourage scientific research.

Question 7

Following is the balance sheet for the end of the year 1999 for Silver Spurs, Inc.:
  They have generated sales for 1999 of $35,000 resulting in net income of $15,000. Due to the difficulty associated with acquiring raw materials, Silver Spurs has experienced sluggish business that has caused fixed assets to be underutilized. Management thinks it can double sales next year through the introduction of a new product. No new fixed assets will be required and the dividend payout ratio will be 100%. Assume no additional deprecation expense will be taken in 2000. Project next year's balance sheet in the space provided above to determine the additional funding needed (AFN) for this new product. Assume all current assets and accounts payable will vary directly with sales and notes payable at the end of 1999 are paid off in 2000.

Accepted Answer

The answer of Following is the balance sheet for the...

Question 8

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

Accepted Answer

A)  58.82% 
B)  0.59 
C)  0.7647% 
D)  1.31

Question 9

A shorter average collection period is always a CLEAR indication of efficiency in the accounts department. Discuss.

Accepted Answer

The answer of A shorter average collection period is always...

Question 10

What is the matching principle?

Accepted Answer

A)  The average amount of taxes a corporation pays should match exactly their reported income. 
B)  Cash inflows should be matched with cash outflows. 
C)  Assets should always equal liabilities plus owners equity. 
D)  Expenses should be matched to the revenues they help generate.

Question 11

Use the following information to answer the question:
  
-Maintaining current dividend payout policy, what are expected dividends forecast to be next year? (Assume that depreciation and fixed expenses are unchanged year over year.

Accepted Answer

A)  $1,125 
B)  $4,950 
C)  $937 
D)  $1271

Question 12

Briefly discuss the three general approaches to forecastin

Accepted Answer

The answer of Briefly discuss the three general approaches to...

Question 13

A firm has a low asset turnover ratio relative to the industry. Explain why this may be occurring if the company is not considered to be particularly well managed.

Accepted Answer

The answer of A firm has a low asset turnover...

Question 14

A firm expects to have earnings before amortization and taxes of $150,000 in each of the next three years. There are no interest payments and taxes are at a rate of 40%. It is considering the purchase of an asset costing $120,000 requiring $15,000 in installation costs and having a recovery period of three years.
a. Calculate the amortization expense for year three using straight line amortization.
b. If preferred dividends paid are $20,000, common stock dividends paid are $20,000, and the number of shares of common stock outstanding is 10,000, what are the reported EPS in year three?

Accepted Answer

The answer of A firm expects to have earnings before...

Question 15

Given these industry ratios:
  Use the DuPont equation to compare the performance of Elton Corp to the industry average. What can you say about their(a) profitability, (b) expense control, (c) asset management, and (d) debt management.

Accepted Answer

The answer of Given these industry ratios:
  Use the...

Question 16

Why is there considered to be a decrease in operating cash flow if there is a increase in Accounts Receivable on a year over year basis and an increase in cash flow if Accounts Payable increase on a year over year basis?

Accepted Answer

The answer of Why is there considered to be a...

Question 17

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.
-Retained Earnings for 2000 are projected to be:

Accepted Answer

A)  $4,575 
B)  $5,000 
C) $8,825 
D) $9,575

Question 18

Use the following information to answer the question:
  
-What are expected taxes for next year? (Assume depreciation and fixed expenses do not change year over year)

Accepted Answer

A)  $7,125 
B)  $4,050 
C)  $15,000 
D)  $4575

Question 19

Why would a company probably be reluctant to acquire funds through a stock or bond issue if only a relatively small amount of funds were needed.

Accepted Answer

The answer of Why would a company probably be reluctant...

Question 20

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 additional funds needed are:

Accepted Answer

A) $1,675 
B) ($1,500) 
C)  $9,750 
D) 0

Exam 2: Essential Concepts in Finance: Part A

Which of the following items on the income statement and balance sheet is least likely to vary spontaneously with sales?

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Earnings Per Share are: