FIN300 UKY Exam #1

Net working capital is defined as:

Current assets minus current liabilities.

What is the relationship between present value and future value interest factors?

The factors are reciprocals of each other.

Which one of the following will produce the lowest present value interest factor?

8 percent interest for 10 years.

Which of the following accounts are included in working capital management? I. Accounts Payable II. Accounts Receivable III. Fixed Assets IV. Inventory

I, II, and IV only.

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raise capital. IV. Unlimited firm life.

I, III, and IV only.

Which one of the following statements is correct?

Income from both sole proprietorships and partnerships is taxed as individual income.

Which one of the following functions should be the responsibility of the controller rather than the treasurer?

Income tax returns.

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

Was facilitated in the secondary market.

Depreciation for a tax-paying firm:

Increases expenses and lowers taxes.

Your grandmother has promised to give you $10,000 when you graduate from college. She is expecting you to graduate three years from now. What happens to the present value of this gift if you speed up your graduation by one year and graduate two years from now?

Increases.

Sally and Alicia currently are general partners in a business located in Atlanta, Georgia. They are content with their current tax situation but are both very uncomfortable with the unlimited liability to which they are each subjected. Which form of business entity should they consider to replace their general partnership assuming they wish to remain the only two owners of their business? Whichever organization they select, they wish to be treated equally.

Limited liability company.

Which one of the following characteristics applies to a limited liability company?

Taxed similar to a partnership.

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 Cash flow to creditors = $6,430 - ($68,219 - 72,918) = $11,129

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

Webster World has sales of $13,800, costs of $5,800, depreciation expense of $1,100, and interest expense of $700. What is the operating cash flow if the tax rate is 32 percent?

$6,016 Earnings before interest and taxes = $13,800 - 5,800 - 1,100 = $6,900 Taxable income = $6,900 - 700 = $6,200 Tax = .32($6,200) = $1,984 Operating cash flow = $6,900 + 1,100 - 1,984 = $6,016

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? $0-50,000 15% 50,001-75,000 25% 75,001-100,000 34% 100,001-335,000 39%

$8,080

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 $130,513?

26.17%

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency problem.

A stakeholder is:

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.

Average tax rate Marginal tax rate

Avg= .15(50,000)+.24(75,000-50,001)+etc Marg= the tax category (%) for the total value

Why should financial managers strive to maximize the current value per share of the existing stock?

Because they have been hired to represent the interests of the current shareholders.

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

Capital budgeting.

The decision to issue additional shares of stock is an example of which one of the following?

Capital structure decision.

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

Cash flow from assets.

The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $3.5 million, and the 2015 balance sheet showed long-term debt of $3.7 million. The 2015 income statement showed an interest expense of $115,000. What was the firm's cash flow to creditors during 2015?

Cash flow to creditors $ -85,000 correct

What is the cash flow to creditors for 2015?

Cash flow to creditors = $277 - ($4,103 - 4,780) = $954

Which one of the following parties has ultimate control of a corporation?

Shareholders.

Which one of the following is a capital budgeting decision?

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

Which of these will increase the present value of an amount to be received sometime in the future?

Decrease in the interest rate.

Corporate bylaws:

Determine how a corporation regulates itself.

Billy's Exterminators, Inc., has sales of $646,000, costs of $286,000, depreciation expense of $38,000, interest expense of $29,000, a tax rate of 35 percent, and paid out $36,000 in cash dividends. The firm has 90,000 shares of common stock outstanding. What are the earnings per share? What are the dividends per share?

Earnings per share $ 2.12 correct Dividends per share $ 0.40 correct

A business owned by a solitary individual who has unlimited liability for its debt is called a:

Sole proprietorship.

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.

A limited partnership:

Has a greater ability to raise capital than a sole proprietorship.

The 2014 balance sheet of Steelo, Inc., showed current assets of $3,150 and current liabilities of $1,630. The 2015 balance sheet showed current assets of $3,000 and current liabilities of $1,605. What was the company's 2015 change in net working capital, or NWC?

Net working capital $ -125 correct

Billy's Exterminators, Inc., has sales of $589,000, costs of $278,000, depreciation expense of $30,000, interest expense of $25,000, and a tax rate of 35 percent. What is the net income for this firm?

$ 166,400 correct

What is the free cash flow for 2015?

$1,732 Change in net working capital = ($4,771 - 1,532) - ($6,127 - 4,194) = $1,306 Net capital spending = $17,107 - 17,489 + 1,611 = $1,229 Operating cash flow = $3,396 + 1,611 - 740 = $4,267 Free cash flow = Cash flow from assets = $4,267 - 1,229 - 1,306 = $1,732

The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed $480,000 in the common stock account and $5.4 million in the additional paid-in surplus account. The 2015 balance sheet showed $520,000 and $5.7 million in the same two accounts, respectively. If the company paid out $430,000 in cash dividends during 2015, what was the cash flow to stockholders for the year?

Cash flow to stockholders $ 90,000 correct

Which type of business organization has all the respective rights and privileges of a legal person?

Corporation.

The articles of incorporation: I. Describe the purpose of the firm. II. Are amended periodically. III. Set forth the number of shares of stock that can be issued. IV. Detail the method that will be used to elect corporate directors.

I and III only.

Which of the following are current assets? I. Cash II. Trademark III. Accounts receivable IV. Notes payable

I and III only.

Which of the following parties are considered stakeholders of a firm? I. Employee II. Long-term creditor III. Government IV. Common stockholder

I and III only.

Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?

Limited partnership.

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

Marginal.

Which one of the following best states the primary goal of financial management?

Maximize the current value per share.

Which term relates to the cash flow that results from a firm's ongoing, normal business activities?

Operating cash flow.

Which one of the following is a primary market transaction?

Sale of a new share of stock to an individual investor.

Public offerings of debt and equity must be registered with which one of the following?

Securities and Exchange Commission.