FIN5008 - ch. 2

Which one of the following is included in net working capital?

Invoice from a supplier for inventory purchased

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation.

Leslie Printing has net income of $26,310 for the year. At the beginning of the year, the firm had common stock of $55,000, paid-in surplus of $11,200, and retained earnings of $48,420. At the end of the year, the firm had total equity of $142,430. The firm does not pay dividends. What is the amount of the net new equity raised during the year?

$1,500 142,430 - 26,310 - 55,000 - 11,200 - 48,420 = 1500 total equity - net income - common stock - paid in surplus - retained earnings = long term debt

A firm has earnings before interest and taxes of $25,380 with a net income of $14,220. The taxes amounted to $5,400 for the year. During the year, the firm paid out $43,800 to pay off existing debt and then later borrowed an additional $24,000. What is the amount of the cash flow to creditors?

$25,560 interest: 25,380 - 14,220 - 5,400 = 5,760 cash flow to creditors: 5,760 + 43,800 - 24,000 = 25,560 interest: earnings before interest and taxes - net income - taxes cash flow to creditors: interest + firm pay out - net new borrowing

The Toy Store has beginning retained earnings of $28,975. For the year, the company earned net income of $4,680 and paid dividends of $1,600. The company also issued $3,000 worth of new stock. What is the value of the retained earnings account at the end of the year?

$32,055 28,975 + 4680 - 1600 = 32,055 retained earnings + net income - paid dividends

Holly Farms has sales of $581,600, costs of $479,700, depreciation expense of $32,100, and interest paid of $8,400. The tax rate is 42 percent. How much net income did the firm earn for the period?

$35,612 581,600 - 479,700 - 32,100 = 69,800 (earnings before interest and taxes) 69,800 - 8,400 = 61,400 (taxable income) 61,400 * 0.42 = 25,788 (taxes) 61,400 - 25,788 = 35,612 sales - cost - depreciation = earnings before interest and taxes earnings before interest and taxes - interest paid = taxable income taxable income * tax rate = taxes taxable income - taxes = net income

From the following income statement items, calculate the operating cash flow: Sales 34759 Costs 11345 Depreciation expense 2791 Interest expense 1966 Tax rate 35%

16,884.05 34759 - 11345 - 2791 = 20623 20623 - 1966 = 18657 18657*0.35 = 6,529.95 20623 + 2781 - 6529.95 = 15884.05 sales - costs - depreciation expense = earnings before interest and taxes earnings before interest and taxes - interest expense = taxable income taxable income * tax rate = taxes earnings before interest and taxes + depreciation - taxes = operating cash flow

ACE, Inc. incurred depreciation expenses of $21,900 last year. The sales were $811,400 and the addition to retained earnings was $14,680. The firm paid interest of $9,700 and dividends of $10,100. The tax rate was 40 percent. What was the amount of the costs incurred by the firm?

738,500 earnings before interest and taxes: [(14680+10100)/(1-0.4)]+9700=51,000 costs: 811400-21900-51000=738,500

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity.

Which one of the following is an intangible fixed asset?

Copyright

The financial statements of Jame's Auto Repair reflect cash of $14,600, accounts receivable of $11,500, accounts payable of $22,900, inventory of $17,800, long-term debt of $42,000, and net fixed assets of $63,800. The firm estimates that if it wanted to cease operations today it could sell the inventory for $35,000 and the fixed assets for $49,000. The firm could also collect 100 percent of its receivables. What is the market value of the assets?

$110,100 (14600+11500+35000+49000) = $110,100 cash + accounts receivable + inventory sold + fixed assets = market value

The Underground Cafe has an operating cash flow of $187,000 and a cash flow to creditors of $71,400 for the past year. During that time, the firm invested $28,000 in net working capital and incurred net capital spending of $47,900. What is the amount of the cash flow to stockholders for the last year?

$39,700 (187,000 - 28,000 - 47,900) - 71,400 = 39,700

Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $12,000. The additional project will increase Able Co.'s taxes by _____ and Bravo Co.'s taxes by ____.

$4,680; $4,080 Able Co.: 12,000 * 0.39 = 4,680 Bravo Co.: 12,000 * 0.34 = 4,080

Donner United has total owners' equity of $18,800. The firm has current assets of $23,100, current liabilities of $12,200, and total assets of $36,400. What is the value of the long-term debt?

$5,400 36,400 - 18,800 - 12,200 = 5,400 current assets - total owners' equity - current liabilities = long term debt

The Holiday Inn earned $177,284 in taxable income for the year. How much tax does the company owe on this income?

$52,390.76 (50,000)*(0.15) = 7,500 (25,000)*(0.25) = 6,250 (25,000)*(0.34) = 8,500 (177,284 - 100,000)*(0.39) = 30,140.76 7,500 + 6,250 + 8,500 + 30,140.76 = 52,390.76

The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending?

$69,800 371,920 - 348,200 + 46,080 = 69,800 ending net fixed assets - beginning net fixed assets + depreciation expense = net capital spending

From the following balance sheet items of a firm, calculate the Owner's Equity: Current assets 1996, current liabilities 2136, long-term debt 3354, and net fixed assets 7829.

4335 1996 + 7829 = 9825 9825 - 2136 - 3354 = 4335 current assets + net fixed assets = total assets total assets = total liabilities total liabilities - current liabilities - long term debt = owners' equity

Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000. What is the marginal tax rate at this level of income?

51.18% Marginal tax = ($56,211 - $48,329)/($565,000 - $549,600) = 51.18 percent

If a firm has a negative cash flow from assets every year for several years, the firm:

may be continually increasing in size.

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital.