chapter 2 FRL 300

Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?

$309,076

T/F? Taxes reduce both net income and operating cash flow

true

T/F? Liquid assets are valuable to a firm

true

Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919. The beginning and ending total debt balances were $84,652 and $78,613, respectively. The interest paid was $4,767. What is the amount of the cash flow to creditors?

-$1,641

liquidity

ease of conversion to cash without significant loss of value

Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate?

32.83 percent

Example of a very liquid asset

$100 of inventory that is sold today for $100 cash

Net working capital is defined as

current assets minus current liabilities

At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors?

$11,129

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?

$20,680

At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?

$21,903

Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a combined book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

$33,763

The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000?

$8,080

Jake owns The Corner Market which he is trying to sell so that he can retire and travel. The Corner Market owns the building in which it is located. This building was built at a cost of $647,000 and is currently appraised at $819,000. The counters and fixtures originally cost $148,000 and are currently valued at $65,000. The inventory is valued on the balance sheet at $319,000 and has a retail market value equal to 1.2 times its cost. Jake expects the store to collect 98 percent of the $21,700 in accounts receivable. The firm has $26,800 in cash and has total debt of $414,700. What is the market value of this firm?

$900,166/////$819,000 + $65,000 + 1.2($319,000) + .98($21,700) + $26,800 - $414,700 = $900,166

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?

33.62 percent

Which one of the following statements concerning net working capital is correct?

A decrease in the cash balance also decreases net working capital.

Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

An increase in depreciation will increase the operating cash flow.

Which one of the following will increase the value of a firm's net working capital?

selling inventory at a profit

Four years ago, Velvet Purses purchased a mailing machine at a cost of $176,000. This equipment is currently valued at $64,500 on today's balance sheet but could actually be sold for $58,900. This is the only fixed asset the firm owns. Net working capital is $57,200 and long-term debt is $111,300. What is the book value of shareholders' equity?

$10,400; ////$64,500 + $57,200 - $111,300 = $10,400

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders?

-$26,360

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

The labor costs for producing a product are expensed when the product is sold.

Which one of the following statements related to taxes is correct?

The marginal tax rate for a firm can be either higher or lower than the average tax rate

T/F? Net working capital increases when inventory is sold for cash at a profit

True

What account is the most liquid?

accounts receivable

The book value of a firm is

based on historical cost