FIN 701 W1

Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of noncash expenses?

$1,611; non cash expenses =depreciation= $1,611

Williamsbburg Markets has an operating cash flow of $4,267 and depreciation of $1,611. Current assets decreased by $1,356 while current liabilities decreased by $2,622, and net fixed assets decreased by $382 during the year. What is the cash flow for the year:

$1,732 Change in NWC= -$1,356 - (-$2,622) Change in NWC= $1,306 NCS= -$382 + 1,611 NCS= $1,229 FCF= CFA= $4,267 - 1,306 - 1,229 FCF = $1,732

Which one of the following represents the most liquid asset:

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

What are the three types of financial management decisions? For each type of decision, give an example of a business transaction that would be relevant:

Capital budgeting (deciding whether to expand a manufacturing plant), capital structure (deciding whether to issue new equity and use the proceeds to retire outstanding debt), and working capital management (modifying the firm's credit collection policy with its customers)

When is stock said to be in equilibrium? Why might a stock at any point in time not be in equilibrium?

Equilibrium is the situation where the actual market price equals the inartistic value, so investors are indifferent between buying and selling a stock. If a stock is in equilibrium then there is no fundamental imbalance, hence no pressure for a charge in the stock's price. At any given time, most stocks are reasonable close to their inartistic values and thus are at or close to equilibrium. However, at times stock prices and equilibrium values are different, so stocks can be temporarily undervalued or overvalued. Investor optimism and pessimism, along with imperfect knowledge about the true inartistic value, leads to deviations between the actual prices and inartistic values

Which one of the following is the financial statement that shows age accounting value of a firm's equity as of a particular date:

balance sheet

Which one of the following terms is defined as the management of a firm's long-term investments:

capital budeting

Which one of the following terms is defined as the mixture of a firm's debt and equity financing:

capital structure

Cash flow from assets is also known as the firm's:

free cash flow

Corporate dividends are:

taxable income of the recipient even though that income was previously taxed

An example of a capital budgeting decision is deciding:

whether or not to purchase a new machine for the production line

A firm's short-term assets and its short-term liabilities are referred to as the firm's:

working capital

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

cash flow from assets

The Sarbanes-Oxley Act of 2002 is a governmental response to:

management greed and abuses

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

net working capital may be a negative value

As the degree of financial leverage increases, the:

probability a firm will encounter financial distress increases

A business owned by a solitary individual who has unlimited liability for the firm's debt is called:

sole proprietorship

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 CFC= $6,430 - ($68,219 - 72,918) CFC= $11, 129

Which one of the following questions is a working capital management decision:

how much inventory should be on hand for immediate sale?

The growth of both sole proprietorships and partnerships is frequently limited by the firm's:

inability to raise cash

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accountable receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital:

$720 NWC=$680 + 210 + 80 -250 NWC= $720

What are some actions that stockholders can take to ensure that management's and stockholders' interests are aligned?

Useful motivational tools that will aid in aligning stockholders' and management's interest include: (1) reasonable compensation packages, (2) direct intervention by shareholders, including firing managers who don't perform well, and (3) the threat of takeover.

Which one of the following accounts is the most liquid:

accounts receivable

Which one the following is a current asset:

accounts receivable

Which business form is best suited to raising large amounts of capital:

corporation

Which of the following statements is correct:

corporations can have an unlimited life

Which one of the following statements concerning a sole proprietorship is correct:

the owner of a sole proprietorship is personally responsible for all of the company's debts

One disadvantage of the corporate form of business ownership is the:

double taxation of distributed profits

Noncash items refer to:

expenses that do not directly affect cash flows

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value:

good reputation of the company

Capital structure decision includes determining:

how much debt should be assumed to fund a project

Which of the following actions by a financial manager is more apt to create an agency problem:

increasing current profits when doing so lowers the value of the company's equity

A business parter whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

limited partner

HiWay furniture has sales of $316,000, depreciation of $47,200, interest expense of $41,400, costs of $148,200, and taxes of $16,632. The firm has net capital spending of $36,400 and a decrease in net working capital of $14,300. What is the cash flow from assets for the year:

$129,068 OCF= $316,000 - 148,200 - 16,632 OCF= $151,168 CFA= $151,168 - 36,400 - (-$14,300) CFA= $129,068

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 charge in net working capital:

$21,903 Change in NWC= ($122,418 - 103,718) - ($121,306 - 124,509) Change in NWC= $21, 903

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital:

$300 NWC= $4,900 - 3,200 - 1,400 NWC= $300

You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?

construction of a new restricted access highway located between the store and the surrounding residential areas

A business created as a distinct legal entity and treated as a legal "person" is called a(n)

corporation

Net working capital is defined as:

current assets minus current liabilities

Which one of the following will increase the cash flow from assets, all else equal:

decrease in the change in net working capital

Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings:

$98,210 Net income= ($546,000 - 295,000 - 37,000 - 15,000) (1-.21) Net income= $157,210 Addition to retained earnings= $157,210 - 59,000 Addition to retained earning= $98,210

The decision to issue additional shares of stock is an example of:

a capital structure decision

Nu Furniture has sales of $241,000, depreciation of $32,000, interest expense of $35,700, costs of $103,400, and taxes of $14,637. What is the operative cash flow for the year:

$122,963 OCF= $241,000 - 103,400 - 14,637 OCF= $122,963

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 book value of $6,943 were sold. Depreciation for the year was $43,822. What is the anoint of net capital spending:

$33,763 Net capital spending= $209,411 - 218,470 + 42,822 Net capital spending= $33,763

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of total liabilities:

$6,890 Current assets= $7,390 - 3,910 Current assets= $3,480 Current liabilities= $3,480 - 560 Current liabilities= $2,920 Total liabilities= $2,920 + 3,970 Total liabilities= $6,890

A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:

general partnership

The What-Not Shop owns the building in which it is located. The building initially cost $647,000 and is currently appraised at $819,000. The fixtures originally cost $148,000 and are currently valued at $65,000. The inventory has a book value of $319,000 and a market value equal to 1.1 times the book value. The shop expects to collect 96 percent of the $21,700 in accounts receivable. The shop has $26,800 in cash and total debt of $414,700. What is the market value of the shop's equity:

$867,832 Equity MV= $819,000 + 65,000 + 1.1($319,000) + .96($21,700) + 26,800 - 414,700 Equity MV= $867,832

What is the primary disadvantage of the corporate form of organization? Name at least two advantages of corporate organization:

The primary disadvantage of the corporate form is the double taxation to shareholders of distributed earnings and dividends. Some advantages include: limited liability, ease of the transferability ability to raise capital, and unlimited life

The book value of a firm is:

based on historical cost

The cash flow related to interest payments less any net new borrowing is called the:

cash flow to creditors

Shareholders' equity:

represents the residual value of a firm

Financial managers should primarily focus on the interests of:

shareholders