ch 3 cf
59. The Burger Joint paid $420 in dividends and $611 in interest expense. The addition to retained earnings is $397.74 and net new equity is $750. The tax rate is 34 percent. Sales are $6,250 and depreciation is $710. What are the earnings before interest and taxes? a. $1,576.67 b. $1,582.16 c. $1,660.00 d. $1,780.82 E. $1,850.00
e
9. Your _____ tax rate is the amount of tax payable on the next taxable dollar you earn. a. mean b. residual c. total d. average E. marginal
e
33. Which of the following are included in the market value of a firm but are not included in the firm's book value? I. management skills II. patents III. firm's reputation IV. copyrights a. I only b. III only c. IV only D. I and III only e. II and IV only
d
34. As seen on an income statement: a. interest is deducted from income and increases the total taxes incurred. b. the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses. c. depreciation is shown as an expense but does not affect the taxes payable. D. depreciation reduces both the taxable income and the net income. e. interest expense is added to earnings before interest and taxes to get taxable income.
d
35. All else constant, the earnings per share will increase if the: a. net income decreases. b. number of shares outstanding increases. c. total revenue of the firm decreases. D. tax rate decreases. e. operating costs increase.
d
38. Fixed costs include: a. raw materials. b. manufacturing wages. c. management bonuses. D. office salaries. e. shipping and freight.
d
4. A(n) ____ asset is one which can be quickly converted into cash without significant loss in value. a. tangible b. fixed c. intangible D. liquid e. marketable
d
40. The cash flow from assets is equal to: a. operating cash flow minus the change in net working capital plus net capital spending. b. cash flow to creditors minus the cash flow to shareholders. c. earnings before interest and taxes plus depreciation minus taxes. D. earnings before interest and taxes plus depreciation minus taxes minus net capital spending minus the change in net working capital. e. the cash flow to shareholders minus the cash flow to creditors.
d
42. A negative cash flow from assets indicates that: a. a firm is borrowing money. b. a firm is acquiring new fixed assets. c. a firm has a net loss for the period. D. outside funding is being utilized. e. newly issued shares of stock are being sold.
d
50. A firm has common stock of $5,500, paid-in surplus of $8,200, total liabilities of $6,600, current assets of $7,200, and fixed assets of $16,900. What is the amount of the shareholders' equity? a. $10,300 b. $13,700 c. $15,600 D. $17,500 e. $20,300
d
51. Your firm has total assets of $1,400, fixed assets of $600, long-term debt of $700, and short-term debt of $100. What is the amount of net working capital? a. $0 b. $100 c. $600 D. $700 e. $800
d
57. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $218,740? a. 25.38 percent b. 28.43 percent c. 30.67 percent D. 31.34 percent e. 39.00 percent
d
62. At the beginning of the year, a firm has current assets of $91,807 and current liabilities of $102,343. At the end of the year, the current assets are $89,476 and the current liabilities are $92,638. What is the change in net working capital? a. $13,698 b. $8,407 c. $2,109 D. $7,374 e. $11,991
d
8. Noncash items refer to: a. the talents of the firm's employees which are not reflected in the financial statements. b. the accounts payable of a firm. c. the costs incurred for the purchase of intangible fixed assets. D. expenses charged against revenues that do not directly affect cash flow. e. sales which are made on credit.
d
15. The cash flow related to interest payments less any net new borrowing is called the: a. operating cash flow. b. capital spending. c. net working capital. d. cash flow from assets. E. cash flow to creditors.
e
16. Cash flow to stockholders is defined as the: a. total amount of interest and dividends paid during the past year. b. change in total equity over the past year. c. cash flow from assets plus the cash flow to creditors. d. operating cash flow minus the cash flow to creditors. E. dividend payments less any net new equity raised.
e
27. Which one of the following statements concerning liquidity is correct? a. If you can sell an asset today, it is a liquid asset. b. If you can sell an asset within the next twelve months it is considered highly liquid. c. Inventory is more liquid than accounts receivable. d. Balance sheet accounts are listed in order of ascending liquidity. E. An asset must be sellable quickly at full value to be considered liquid.
e
29. Which of the following accounts are included in shareholders' equity? I. retained earnings II. patents and copyrights III. paid-in surplus IV. notes payable 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
e
3. Net working capital is defined as: a. total liabilities minus shareholders' equity. b. current liabilities minus shareholders' equity. c. fixed assets minus long-term liabilities. d. total assets minus total liabilities. E. current assets minus current liabilities.
e
30. Shareholders' equity: a. increases anytime total assets increases. b. is equal to total assets plus total liabilities. c. decreases whenever new shares of stock are issued. d. includes long-term debt, preferred stock, and common stock. E. represents the residual value of a firm.
e
36. According to Generally Accepted Accounting Principles: a. depreciation may or may not be recorded at management's discretion. b. income is recorded based on the matching principle. c. costs are recorded based on the realization principle. d. depreciation is recorded based on the recognition principle. E. costs of goods sold are recorded based on the matching principle
e
44. A firm starts its year with positive net working capital. Assume that during the year, the firm acquires more short-term debt than it does short-term assets. This means: a. the ending net working capital must be negative. b. either accounts receivable or inventory had to decrease during the year. c. the beginning current assets were less than the beginning current liabilities. d. accounts payable had to decrease during the year. E. the ending net working capital might be positive, negative, or equal to zero.
e
49. A firm has net working capital of $820. Long-term debt is $3,260, total assets are $5,920 and fixed assets are $3,410. What is the amount of the total liabilities? a. $2,440 b. $4,080 c. $4,130 d. $4,230 E. $4,950
e
5. Financial leverage refers to the: A. use of debt in a firm's capital structure. b. ratio of retained earnings to shareholders' equity. c. ratio of paid-in surplus to shareholders' equity. d. ratio of sales to total assets. e. ratio of current assets to long-term assets.
a
1. The financial statement summarizing the value of a firm's equity on a particular date is the: a. income statement. B. balance sheet. c. statement of cash flows. d. cash flow statement. e. dividend statement.
b
61. The Picture Frame has beginning net fixed assets of $32,681 and ending net fixed assets of $33,127. During the year, assets with a combined book value of $932 were sold. Depreciation for the year was $5,364. What is the amount of net capital spending? a. $5,311 b. $5,406 C. $5,810 d. $6,289 e. $6,742
c
10. Your _____ tax rate measures the total taxes you pay divided by your total taxable income. a. deductible b. residual c. total D. average e. marginal
d
14. The net total cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the: a. operating cash flow. b. net capital spending. c. net working capital. D. cash flow from assets. e. cash flow to stockholders.
d
17. Cash flow from assets is also known as the firm's: a. capital structure. b. equity structure. c. hidden cash flow. D. free cash flow. e. historical cash flow.
d
20. A machine used to wrap a product for shipment to a customer is classified as: a. a current asset. b. an intangible asset. c. net working capital. D. a tangible asset. e. an inventory item.
d
26. Which one of the following accounts is the most liquid? a. inventory b. building c. accounts receivable d. equipment E. cash
e
11. Which term relates to the cash flow which results from a firm's ongoing, normal business activities? A. operating cash flow b. capital spending c. net working capital d. cash flow from assets e. cash flow to creditors
a
18. Net income divided by the total number of outstanding shares is referred to as the: A. earnings per share. b. profit margin. c. return per share. d. market earnings. e. dividend per share.
a
21. Which of the following are included in current assets? I. retained earnings II. inventory III. accounts payable IV. cash A. II and IV only b. I and III only c. I, II, and IV only d. III and IV only e. II, III, and IV only
a
23. Which of the following are included in current liabilities? I. note payable to a supplier in eight months II. amount due from a customer next month III. account payable to a supplier that is due next week IV. loan payable to the bank in fourteen months A. I and III only b. II and III only c. III and IV only d. II, III, and IV only e. I, II, and III only
a
31. The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. b. lower the amount of debt incurred. c. less debt a firm has per dollar of total assets. d. higher the number of outstanding shares of stock. e. lower the balance in accounts payable.
a
37. Depreciation: A. reduces both taxes and net income. b. increases the net fixed assets as shown on the balance sheet. c. reduces both the net fixed assets and the costs of a firm. d. is a noncash expense which increases the net operating income. e. decreases net fixed assets, net income, and operating cash flows.
a
41. All else constant, an increase in _____ will cause the cash flow from assets to increase. A. depreciation b. net capital spending c. net working capital d. taxes e. costs
a
46. Which one of the following must increase the cash flow to creditors? A. an increase in the cash flow from assets accompanied by a decrease in the cash flow to stockholders b. acquiring new long-term debt c. decreasing the dividend paid d. a decrease in both the cash flow to stockholders and the cash flow from assets e. the repayment of an old loan and the acquisition of a new loan
a
47. Cash flow to stockholders must be positive when: A. dividends paid exceed the net new equity raised. b. the net sale of common stock exceeds the amount of dividends paid. c. no income is distributed but new shares of stock are sold. d. both the cash flow to assets and the cash flow to creditors are negative. e. both the cash flow to assets and the cash flow to creditors are positive.
a
55. The Corner Store paid $1,100 in dividends and $850 in interest this past year. Common stock increased by $500 and retained earnings decreased by $260. What is the net income for the year? A. $840 b. $850 c. $860 d. $1,360 e. $1,0860
a
58. The tax rates are as shown. California Surfin' currently has taxable income of $86,750. How much additional tax will the firm owe if taxable income increases by $16,500? A. $5,773 b. $5,811 c. $6,120 d. $6,212 e. $6,435
a
63. At the beginning of the year, long-term debt of a firm is $68,700 and total debt is $71,425. At the end of the year, long-term debt is $92,460 and total debt is $95,609. The interest paid is $5,412. What is the amount of the cash flow to creditors? A. $18,348 b. $12,936 c. $2,414 d. $23,760 e. $29,172
a
66. The Row Boat Cafe has operating cash flow of $36,407. Depreciation is $4,609 and interest paid is $1,105. A net total of $3,780 was paid on long-term debt. The firm spent $18,000 on fixed assets and increased net working capital by $3,247. What is the amount of the cash flow to stockholders? A. $10,275 b. $12,933 c. $15,160 d. $19,998 e. $20,045
a
7. The financial statement summarizing a firm's performance over a period of time is the: A. income statement. b. balance sheet. c. statement of cash flows. d. tax reconciliation statement. e. market value report.
a
12. Which term refers to the net expenditures by a firm on fixed asset purchases? a. net new equity B. net capital spending c. net working capital d. cash flow from assets e. cash flow to creditors
b
19. The dividend per share is the amount of: a. net income the firm earned per share during the period. B. cash paid to investors on each share of outstanding stock. c. cash the firm received from its operations divided by the number of shares outstanding. d. interest paid during the period divided by the number of shares outstanding. e. cash received for each share of stock sold during the period.
b
22. Which one of the following represents a portion of a firm's value but yet is excluded from the assets appearing on a balance sheet? a. excess cash placed in an investment account B. good reputation of the company c. equipment owned by the firm d. money due from a customer e. an item held by the firm for future sale
b
32. The book value of a firm is: a. equivalent to the firm's market value provided that the firm has some fixed assets. B. based on historical cost. c. generally greater than the market value when fixed assets are included. d. more of a financial than an accounting valuation. e. adjusted to the market value whenever the market value exceeds the stated book value.
b
45. Net capital spending: a. is equal to ending fixed assets minus beginning fixed assets. B. is equal to zero if the decrease in the fixed assets account is equal to the depreciation expense. c. reflects the net changes in total assets over a stated period of time. d. is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. e. is equal to the change in the inventory balance for the period.
b
53. Six years ago, Thompson Distributors purchased a mailing machine at a cost of $368,000. This equipment is currently valued at $172,200 on today's balance sheet but could actually be sold for $211,400. This is the only fixed asset the firm owns. Net working capital is $121,000 and long-term debt is $82,500. What is the book value of shareholders' equity? a. $89,700 B. $210,700 c. $211,400 d. $249,900 e. $406,500
b
60. Toby's Pizza has total sales of $987,611 and costs of $724,268. Depreciation is $39,740 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? a. $147,577.98 B. $187,317.98 c. $191,417.06 d. $213,008.14 e. $223,603.00
b
65. Hi-Performance Motors has net income of $62,408. The firm pays out 55 percent of the net income to its shareholders as dividends. During the year, the company sold $125,000 worth of common stock. What is the cash flow to stockholders? a. $125,000.00 B. $90,675.60 c. $48,246.19 d. $22,309.11 e. $51,368.29
b
13. The difference between a firm's current assets and its current liabilities is called: a. operating cash flow. b. capital spending. C. net working capital. d. cash flow from assets. e. cash flow to creditors.
c
2. A current asset is best defined as: a. an asset, such as equipment, that is currently owned by a firm. b. an asset the firm expects to own within the next year. C. an asset which is expected to be converted into cash within the next year. d. the amount of cash on hand the firm currently shows on its balance sheet. e. the market value of the inventory currently owned by the firm.
c
24. Which one of the following statements concerning net working capital is correct? a. Net working capital is positive when current liabilities exceed current assets. b. Net working capital includes cash, accounts receivables, equipment, and accounts payable. C. Inventory is a part of net working capital. d. The change in net working capital is equal to the beginning net working capital minus the ending net working capital. e. Net working capital is equal to total assets minus current liabilities.
c
25. Which one of the following statements concerning net working capital is correct? a. The lower the net working capital the greater the ability of a firm to meet its current obligations. b. The change in net working capital is equal to current assets minus current liabilities. C. A decrease in accounts payable increases net working capital, all else constant. d. Net working capital is equal to long-term assets minus long-term liabilities. e. Net working capital is a part of the operating cash flow.
c
39. When you are making a financial decision, the most relevant tax rate is the _____ rate. a. average b. fixed C. marginal d. total e. variable
c
43. Which one of the following will decrease a firm's operating cash flow? a. a decrease in wages paid b. an increase in sales C. a decrease in the depreciation expense d. a decrease in the marginal tax rate e. a decrease in net working capital
c
48. A firm has $680 in inventory, $2,320 in fixed assets, $280 in accounts receivables, $490 in accounts payable, and $130 in cash. What is the amount of the current assets? a. $410 b. $960 C. $1,090 d. $2,920 e. $3,410 Current assets = $680 + $280 + $130 = $1,090
c
52. Knight Insurance has shareholders' equity of $136,900. The firm owes a total of $71,400 of which 30 percent is payable within the next year. The firm has net fixed assets of $152,800. What is the amount of the net working capital? a. $21,420 b. $25,300 C. $34,080 d. $46,720 e. $55,500
c
54. Peter owns The Train Store which he is trying to sell so that he can retire and travel. The Train Store owns the building in which it is located. This building was built at a cost of $427,000 and is currently appraised at $575,000. The display counters and fixtures originally cost $87,000 and are currently valued at $49,000. The inventory is valued on the balance sheet at $289,000 and has a retail market value equal to 1.4 times its cost. Peter expects the store to collect 97 percent of the $48,041 in accounts receivable. The firm has $11,200 in cash and has total debt of $167,400. What is the market value of this firm? a. $771,000 b. $907,800 C. $919,000 d. $945,800 e. $957,000
c
56. Amy's Dress Shoppe has sales of $421,000 with costs of $342,000. Interest expense is $18,000 and depreciation is $33,000. The tax rate is 34 percent. What is the net income? a. $9,520 b. $12,420 C. $18,480 d. $30,360 e. $52,140
c
6. The common set of standards and procedures by which audited financial statements are prepared is known as the: a. Matching principle. b. Cash flow identity. C. Generally Accepted Accounting Principles (GAAP). d. Financial Leverage Reporting Principles (FLRP). e. Standard Market Value Guidelines (SMVG).
c
64. Morrison's Corner Bakery has beginning long-term debt of $23,509 and ending long- term debt of $19,847. The beginning and ending total debt balances are $26,847 and $24,613, respectively. The interest paid is $1,988. What is the amount of the cash flow to creditors? a. $1,674 b. $3,662 C. $5,650 d. $7,418 e. $7,629
c
28. Liquidity is: a. equal to net working capital. b. another term for current assets. c. equal to the market value of a firm's total assets minus its current liabilities. D. valuable to a firm even though holding liquid assets is not very profitable. e. generally associated with intangible assets.
d