Finance exam 1 ch 2
Papa Roach Exterminators, Inc., has sales of $624,000, costs of $275,000, depreciation expense of $41,000, interest expense of $29,000, and a tax rate of 40 percent. What is the net income for the firm?
$167,400 Explanation The income statement for the company is: Income Statement Sales$624,000 -Costs275,000 -Depreciation 41,000 EBIT$308,000 -Interest 29,000 EBT$279,000 -Taxes (40%) 111,600 =Net income $167,400
If total assets are $50,000 and total liabilities are $20,000, what is total equity?
$30,000 Total assets is always equal to total liabilities plus total equity. Therefore, 50,000 - 30,000 = 20,000
The tax rates are as shown. Taxable Income // Tax Rate $0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% Your firm currently has taxable income of $80,500. How much additional tax will you owe if you increase your taxable income by $21,700?
$7,488 Explanation Taxes on $80,500 income = 0.15($50,000) + 0.25($75,000 - 50,000) + 0.34($80,500 - 75,000) = $15,620 New taxable income = $80,500 + $21,700 = $102,200 Taxes on $102,200 income = 0.15($50,000) + 0.25($75,000 - 50,000) + 0.34($100,000 - 75,000) + 0.39($102,200 - 100,000) = $23,108 Additional tax = $23,108 - $15,620 = $7,488
If a firm has $300,000 in cash flow from assets and $100,000 in cash flow to shareholders, what is the cash flow to creditors?
200,000 Explanation: The cash flow from assets has to equal the cash flow to shareholders plus the cash flow to creditors. CF from A = CF to S + CF to C 300,000 = 100,000 + CF to C CF to C = 300,000 - 100,000 = 200,000
The tax rates are as shown. Taxable Income // Tax Rate $0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% What is the average tax rate for a firm with taxable income of $122,013?
25.27% Explanation Taxes paid = 0.15($50,000) + 0.25($75,000 - 50,000) + 0.34($100,000 - 75,000) + 0.39($122,013 - 100,000) = $30,835.07Average tax rate = $30,835.07 / $122,013 = 25.27%
If sales are $100,000, COGS are $40,000, marketing costs are $10,000, depreciation is $5,000, interest is $5,000, and the tax rate is 20%, what is the net income?
32,000 Sales - COGS - other expenses - depreciation - interest = EBT 100,000 - 40,000 - 10,000 - 5,000 -5,000 = 40,000 EBT - taxes = net income 40,000 - 40,000(.2) = 40,000 - 8,000 = 32,000
What is the cash flow from assets if the operating cash flow is +$5,000, the change in NWC is +$1,000 and net capital spending is "negative" $2,000?
6,000 Cash flow from assets is equal to operating cash flow less change in net working capital less net capital spending. CF from A = 5,000 - 1,000 - (-2,000) = 5,000 - 1,000 +2,000 = 6,000
Which one of the following statements concerning net working capital is correct?
A decrease in the cash balance may or may not decrease net working capital
Balance Sheet Equation
Assets = Liabilities + Stockholders' Equity
The _____ tax rate is equal to total taxes divided by total taxable income.
Average
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
Balance sheet
Noncash items refer to
Expenses which do not directly affect cash flows
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
Income statement
Which of the following are current assets?
Inventory & Cash
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.
Marginal
Included in Current Liabilities
Notes payable to a supplier in 8 months. Account payable to a supplier that is due next week. (no loan payable)
Income statement
Sales -- COGS -- Depreciation EBIT -- interest Taxable income (EBT) -- taxes (@%) Net income NI Dividends Additional to retained earnings
**Financial Cash Flow
The measure of the flow of cash between the company and its investors Cash flow generated by assets = Cash flow to creditors (bondholders) + Cash flow to stockholders
= liabilities + equity
Total debt = [Current liabilities (notes, payables, accruals) + long-term debt (bonds,loans)] + Common Equity (Common Stock account + Retained Earnings)
Penguin Pucks, Inc., has current assets of $4,100, net fixed assets of $29,500, current liabilities of $3,600, and long-term debt of $6,900. (a)What is the value of the shareholders' equity account for this firm? (b)How much is net working capital?
a)What is the value of the shareholders' equity account for this firm? 23,100 (b)How much is net working capital? 500 Explanation To find owner's equity, we must construct a balance sheet as follows: Balance Sheet CA$4,100 NFA29,500 =TA $33,600 CL $3,600 LTD 6,900 OE ?? = TL & OE $33,600 We know that total liabilities and owner's equity (TL & OE) must equal total assets of $33,600. We also know that TL & OE is equal to current liabilities plus long-term debt plus owner's equity, so owner's equity is: (a) OE = $33,600 − 6,900 − 3,600 = $23,100 (b) NWC = CA − CL = $4,100 − 3,600 = $500
Assets =
any items of value that you own Cash // accounts receivable // inventory Total current assets Net fixed assets Total assets
The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:
cash flow from assets.
Net working capital is defined as:
current assets - current liabilities
intangible assets
long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value
Average Tax Rate (ATR)
the amount of total taxes paid divided by income
Liquidity
the ease with which an asset can be converted into the economy's medium of exchange
Marginal Tax Rate (MTR)
the percent paid in taxes on an extra dollar of income
The marginal tax rate is
the rate that is applied to find the tax that is due on one more dollar earned.
tangible assets
those assets that can be appraised by value or seen or touched physical assets, such as real estate and automobiles, that can be held for either consumption or investment purposes
Which one of the following is classified as an intangible fixed asset?
trademark
