FRL 300

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

free cash flow

Which one of the following represents the most liquid asset?

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

The common set of standards and procedures by which audited financial statements are prepared is known as the:

Generally Accepted Accounting Principles

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes?

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes?

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

Liquid assets are valuable to a firm.

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders'

Shareholders' equity = $5,900 + $21,200 - $8,400 = $18,700

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

cash flow to creditors.

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

Which of the following are included in current liabilities?

note payable to a supplier in eight months; account payable to a supplier that is due next week

Which one of these is most apt to be a fixed cost?

office salaries

Which one of the following accounts is the most liquid?

accounts receivable

Shareholders' equity:

represents the residual value of a firm.

Which one of the following costs is most apt to be a fixed cost?

depreciation

Which one of the following is NOT included in cash flow from assets?

interest expense

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes?

interest expense; depreciation

Net capital spending:

is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.

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

operating cash flow

Which one of the following is classified as an intangible fixed asset?

trademark

Which of the following are included in the market value of a firm but are excluded from the firm's book value?

value of management skills; value of the firm's reputation; value of employee's experience

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?

Book value of shareholders' equity = $64,500 + $57,200 - $111,300 = $10,400

Which of the following are current assets?

Inventory, cash

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

Which one of the following must be true if a firm had a negative cash flow from assets?

The firm utilized outside funding.

The _____ tax rate is equal to total taxes divided by total taxable income.

average

The book value of a firm is:

based on historical cost

Net working capital is defined as:

current assets minus current liabilities.

Noncash items refer to:

expenses which do not directly affect cash flows.

Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000 of which 60 percent is payable within the next year. The firm net fixed assets of $161,900. What is the amount of the net working capital?

Current liabilities = .60 ´ $126,000 = $75,600 Total assets = $141,800 + $126,000 = $267,800 Current assets = $267,800 - $161,900 = $105,900 Net working capital = $105,900 - $75,600 = $30,300

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?

Earnings before interest and taxes = $1,349,800 - $903,500 - $42,700 = $403,600 Tax = $403,600 ´ .34 = $137,224 Operating cash flow = $403,600 + $42,700 - $137,224 = $309,076

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

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

decrease in net capital spending

Cash flow to stockholders is defined as:

dividend payments less net new equity raised.

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

selling inventory at a profit

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 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 related to the cash flow to creditors is correct?

A positive cash flow to creditors represents a net cash outflow from the firm.

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?

Additional tax = .34($100,000 - $97,800) + .39($97,800 + $21,000 - $100,000) = $8,080

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?

Cash flow from assets = $48,450 - (-$1,330) - $24,000 = $25,780 Cash flow to creditors =$2,480 - (-$2,620) = $5,100 Cash flow to stockholders = $25,780 - $5,100 = $20,680

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?

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

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?

Cash flow to stockholders = .40($121,600) - $75,000 = -$26,360

The 2008 balance sheet of Global Tours showed current assets of $1,360 and current liabilities of $940. The 2009 balance sheet showed current assets of $1,640 and current liabilities of $1,140. What was the change in net working capital for 2009?

Change in net working capital = ($1,640 - $1,140) - ($1,360 - $940) = $80

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?

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

Which one of the following is true according to Generally Accepted Accounting Principles?

Costs of goods sold are recorded based on the matching principle.

A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230, and fixed assets are $3,910. What is the amount of the total liabilities?

Current assets = $6,230 - $3,910 = $2,320 Current liabilities = $2,320 - $640 = $1,680 Total liabilities = $1,680 + $4,180 = $5,860 $5,860

During 2009, RIT Corp. had sales of $565,600. Costs of goods sold, administrative and selling expenses, and depreciation expenses were $476,000, $58,800, and $58,800, respectively. In addition, the company had an interest expense of $112,000 and a tax rate of 32 percent. What is the operating cash flow for 2009? Ignore any tax loss carry-back or carryforward provisions.

Earnings before interest and taxes = Net income = $565,600 - $476,000 - $58,800 - $58,800 = -$28,000 Operating cash flow = -$28,000 + $58,800 - $0 = $30,800

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

Net income = $1,300 + (-$310) = $990

Andre's Bakery has sales of $687,000 with costs of $492,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 35 percent. What is the net income?

Net income = ($687,000 - $492,000 - $26,000 - $42,000) (1 - .35) = $82,550

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?

Net working capital = $4,900 - $3,200 - $1,400 = $300

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

Net working capital increases when inventory is sold for cash at a profit.

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

Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($211,360) = $104,680.40 Average tax rate = $104,680.40/$311,360 = 33.62 percent

Which one of the following statements related to an income statement is correct?

Taxes reduce both net income and operating cash flow.

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.

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.

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

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

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

marginal

For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.

depreciation

The higher the degree of financial leverage employed by a firm, the:

higher the probability that the firm will encounter financial distress.

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?

$780 Current assets = $520 + $190 + $70 = $780

An increase in the depreciation expense will do which of the following?

decrease net income; increase the cash flow from assets

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?

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

The Blue Bonnet's 2008 balance sheet showed net fixed assets of $2.2 million, and the 2009 balance sheet showed net fixed assets of $2.6 million. The company's income statement showed a depreciation expense of $900,000. What was the amount of the net capital spending for 2009?

Net capital spending = $2,600,000 - $2,200,000 + $900,000 = $1,300,000

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?

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