GBUS602 Financial Decision Making Test 1

When evaluating financial planning steps, we must consider all of the following

- the planning horizon for the next 2 to 5 years - how all small projects are added up for one big project - identifying the total need investment for the plan

Which one of the following is a use of cash?

-Increase in Inventory -Decrease in Accounts Payable - Dividends Paid

After-Tax Proceeds

1. find salvage value (cost of machinery * what the equipment will be worth %) 2. salvage value * (1-tax rate)

Ways to use cash

1. increase an asset account 2. reduce a liability account

Ways to generate cash

1. reducing an asset 2. increasing a liability

Change in Cash Flow

1. year 1 & 2 total in sales * % change 2. subtract the two

An income statement prepared using GAAP will show revenue when it is

Accrued

Shareholders' Equity

Assets - Liabilities

The Balance Sheet Identity is:

Assets = Liabilities + Owners Equity

Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets?

Balance Sheet

Book Value of Equity

Book Value of Assets - Book Value of Liabilities

The sources and uses of cash over a stated period of time are reflected in the

Cash Flow Statement

The size of a company's tax bill is determined by the tax...

Code

Is one that has a life of less than one year, meaning they must be paid within the year

Current Liability

Total Assets Formula

Current assets 2022 + Net fixed assets 2022

Total Liabilities and Equity Formula

Current liabilities 2022 + Long-term debt 2022 + Equity 2022

Equity Formula

Equity 2021 + Net Income 2022 (1-payout ratio)

T or F: For the Sales Forecast, almost all financial plans require an internally supplied sales forecast.

False

T or F: Since depreciation is a noncash deduction, it does not have cash flow consequences

False

Growth can summarize various aspects of a firm's __________ and ___________ policies.

Financial, Investment

The financial statement that summarizes a firm's revenue and expenses over a period of time

Income Statement

Which loan type requires calls for the borrower to pay interest each period and to repay the entire principal at some point in the future?

Interest-only

An asset's class established its ____________ for tax purposes.

Life

Net Fixed Assets Formula

Net fixed assets 2021 + Capital expenditures 2022 - Depreciation 2022

Dividend

Net income * (1-retention ratio)

A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet?

Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.

The Statement of Cash Flows has all of the following categories

Operating, Financing, Investment

Which loan type requires the borrower to repay a single lump sum payment at some time in the future with interest?

Pure Discount

The first thing reported on an income statement would usually be

Revenues

When reviewing a graph of data from sensitivity analysis, the ____________ the line, the ____________ the sensitivity of the estimated Net Present Value.

Steeper, Greater

Amount of tax due

Step 1. Find book value (equipment cost - accumulated depreciation) Step 2. Find capital gain (sale price or salvage value - book value) Step 3. Fins amount of tax due (capital gain * % in the tax bracket)

External Funding Required Formula

Total assets - Total liabilities and equity

T or F: If a substantial percentage of the scenarios look bad, the degree of forecasting risk is high and further investigation is in order.

True

T or F: The Income Statement measures performance over some period of time.

True

T or F: To generate a coherent plan, goals and objectives will have to be modified, and priorities will have to be established.

True

Which of the following is a reason why a company's market value of equity can differ from its book value of equity?

Which of the following is a reason why a company's market value of equity can differ from its book value of equity?

Ending Cash

beginning cash + net cash flow

Cash flow from assets equals:

cash flow to creditors + cash flow to stockholders

The main focus of sensitivity analysis is to:

determine the one variable that has the highest level of risk.

Operating Cash Flow

earnings before interest and taxes + depreciation - taxes

Beginning Cash

ending cash - net cash increase

It is recommended that at a minimum, we might want to investigate _________ scenarios in all, including the base case.

five

To get the worst case scenario, we assign the least favorable value to each item. This means to assign low values for items like units sold and price per unit and:

high values for cost

Cash Flow to Creditors

interest expenses paid - net new borrowings

Market Value of Equity

market value of net fixed assets + amount of current accounts liquidated - long-term debt

Net Increase in Cash

net cash (operating) - net cash (investing) + net cash (financing)

Annuity

present value= annuity(1-(1+rate)^-years)/rate)

The market value of an asset depends on

riskiness and cash flows

Marginal Tax Rate

the amount of tax payable on the next dollar earned

Capital Intensity Ratio

total assets/sales

Average Tax Rate

total taxes paid divided by total income