intro to finance chapter 2 questions

What is the cash flow to creditors for 2015?

2015 Interest - (2015 LT debt - 2014 LT debt)

What is net new borrowing for 2015?

2015 LT debt minus 2014 LT debt

What is the net capital spending for 2015?

2015 Net fixed assets - 2014 Net fixed assets + Depreciation

What is the amount of dividends paid for 2015? (BS)

2015 being the 2nd year, Net income from income statement minus (Retained earnings in 2015 - RE in 2014)

What is the net working capital for 2015? after looking at info for two years

2015 cash + AR + Inventory - Current liabilities

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.

The book value of a firm is:

Based on historical cost.

The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.

Book value = ($725,000 + 1,375,000) + 2,500,000 = $4,600,000 Market value = $1,900,000 + 2,000,000 = $3,900,000

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

Decrease in the change in net working capital.

Cash flow to stockholders is defined as:

Dividend payments less net new equity raised.

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?

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

Noncash items refer to:

Expenses which 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.

Which of the following are included in current liabilities? I. Note payable to a supplier in 13 months. II. Amount due from a customer last week. III. Account payable to a supplier that is due next week. IV. Loan payable to the bank in 10 months.

III and IV only.

Net capital spending:

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

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 32 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings?

Net income = ($546,000 - 295,000 - 37,000 - 15,000) (1 - .32) = $135,320 Addition to retained earnings = $135,320 - 59,000 = $76,320

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 accounts is the most liquid?

accounts receivable

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

fress cash flow

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 is NOT included in cash flow from assets?

interest expense

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

Net working capital is defined as:

Current assets minus current liabilities.

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I. Interest expense. II. Taxes. III. Cost of goods sold. IV. Depreciation.

I and IV

balance sheet and income statement example to find net capital spending

Net capital spending = $17,107 - 17,489 + 1,611 = $1,229

What is the operating cash flow for 2015? (BS)

Operating cash flow = $3,396 + 1,611 - 740 = $4,267

Which one of the following is classified as a tangible fixed asset?

production equipment

What is the amount of the noncash expenses for 2015? (BS)

The noncash expense is the depreciation in the amount of $1,611.

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

operating cash flow

Global Tours has current assets of $1,360 and current liabilities of $940 as of the beginning of the year. At the end of the year, current assets are $1,720 and current liabilities are $1,080. What was the change in net working capital for the year?

Change in net working capital = ($1,720 - 1,080) - ($1,360 - 940) = $220

Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity?

Book value of shareholders' equity = $97,400 + 41,300 - 102,800 = $35,900

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.

What is the cash flow to creditors for 2015? for two years (BS)

Cash flow to creditors = $1,282 - ($10,650 - 9,800) = $432

The beginning of year balance sheet of The Beach Shoppe showed long-term debt of $2.1 million, while the end of year balance sheet showed long-term debt of $2.3 million. The annual income statement showed an interest expense of $250,000. What was the cash flow to creditors for the year ?

Cash flow to creditors = $250,000 - ($2,300,000 - 2,100,000) = $50,000

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

Cash flow to creditors.

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 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 = $911,400 - 787,300 - 52,600 = $71,500 Tax = $71,500 ×.34 = $24,310 Operating cash flow = $71,500 + 52,600 - 24,310 = $99,790

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

A firm's balance sheet showed beginning net fixed assets of $3.6 million, and ending net fixed assets of $3.4 million. The depreciation expense is $900,000. What was the net capital spending for the year?

Net capital spending = $3,400,000 - 3,600,000 + 900,000 = $700,000

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 $613,000 with costs of $479,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 25 percent. What is the net income?

Net income = ($613,000 - 479,000 - 26,000 - 42,000) (1 - .25) = $49,500

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

Net working capital = $680 + 210 + 80 - 250 = $720

Shareholders' equity:

Represents the residual value of a firm.

At the beginning of the year the balance sheet of The Outlet showed $800,000 in the common stock account and $2.6 million in the additional paid-in surplus account. The end-of-year balance sheet showed $872,000 and $4.8 million in the same two accounts, respectively. The company paid out $150,000 in cash dividends during the year. What is the cash flow to stockholders for the year?

Cash flow to stockholders = $150,000 - [($872,000 + 4,800,000) - ($800,000 + 2,600,000) = -$2,122,000

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

I and III only.

Drew owns The What-Not Shop which he is trying to sell so that he can retire and travel. The shop 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 1.1 times its cost. Jake expects the store to collect 96 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 + 1.1($319,000) + .96($21,700) + 26,800 - 414,700 = $867,832

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