Finance 5352 Chapter 2

1. The Good Life Store has sales of $79,600. The cost of goods sold is $48,200 and the other costs are $18,700. Depreciation is $8,300 and the tax rate is 34 percent. What is the net income? A. $2,904 B. $8,382 C. $11,204 D. $14,660 E. $16,682

$2,904 Net income = ($79,600 - $48,200 - $18,700 - $8,300)(1 - 0.34) = $2,904

1. Global Exporters has total assets of $84,300, net working capital of $22,900, owner's equity of $38,600, and long-term debt of $23,900. What is the value of the current assets? A. $21,600 B. $24,300 C. $38,900 D. $44,700 E. $46,100

$44,700 Current liabilities = $84,300 - $38,600 - $23,900 = $21,800Current assets = $21,800 + $22,900 = $44,700

1. Gallagher's Supply has sales of $387,000 and costs of $294,500. The depreciation expense is $43,800. Interest paid equals $18,200 and dividends paid equal $6,500. The tax rate is 35 percent. What is the addition to retained earnings?

Addition to retained earnings = [($387,000 - $294,500 - $43,800 - $18,200)(1 - 0.35)] - $6,500 = $13,325 Total tax = ($50,000)(0.15) + ($25,000)(0.25) + ($25,000)(0.34) + ($235,000)(0.39) + ($411,562 - $335,000)(0.34) = $139,931.08

1. The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 34 percent?

EBIT = $821,300 - $698,500 - $28,400 = $94,400Tax = ($94,400 - $8,400) ´ 0.34 = $29,240Operating CF = $94,400 + $28,400 - $29,240 = $93,560

1. Net working capital is defined as: A. the depreciated book value of a firm's fixed assets. B. the value of a firm's current assets. C. available cash minus current liabilities. . total assets minus total liabilities. E. current assets minus current liabilities.

current assets minus current liabilities.

1. Which one of the following statements is correct? A) Cash flow from assets/ cash flow of the firm has the same meaning as free cash flow B) Cash flow to creditors is defined as interest paid plus net new borrowing. C) Cash flow to stockholders is defined as dividends paid plus the change in retained earnings. D) Free Cash Flow is cash flow that can be freely distributed to debt holders. E) Net cash flow is the net income minus depreciation.

Cash flow from assets/ cash flow of the firm has the same meaning as free cash flow

1. During the past year, Ernst Electrical Services paid $36,800 in interest along with $48,000 in dividends. The company issued $130,000 of stock and $100,000 of new debt. The company reduced the balance due on the old debt by $225,000. What is the amount of the cash flow to creditors?

Cash flow to creditors = $36,800 - $100,000 + $225,000 = $161,800

1. Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change/addition in net working capital?

Change/addition in net working capital = ($82,600 - $85,100) - ($67,200 - $71,100) = $1,400

The Paper Moon has an operating cash flow of $187,000 and a cash flow to creditors of $61,400 for the past year. During that time, the firm invested $28,000 in net working capital and incurred net capital spending of $48,900. What is the amount of the cash flow to stockholders for the last year?

$48,700 Cash flow to stockholders = ($187,000 - $28,000 - $48,900) - $61,400 = $48,700

1. Green Roofs, Inc. has current liabilities of $14,300 and accounts receivable of $7,800. The firm has total assets of $43,100 and net fixed assets of $23,700. The owners' equity has a book value of $21,400. What is the amount of the net working capital? A. $5,100 B. $5,700 C. $6,500 D. $8,200 E. $9,400

$5,100 Net working capital = $43,100 - $23,700 - $14,300 = $5,100

Six months ago, Altman Metal Works repurchased $20,000 of its common stock. The company pays regular quarterly dividends totaling $7,500 per quarter. What is the amount of the cash flow to stockholders for the past year if no additional shares were issued?

$50,000 Cash flow to stockholders = ($7,500 ´ 4) + $20,000 = $50,000

1. Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity? A. $36,900 B. $66,700 C. $71,600 D. $89,400 E. $106,300

$71,600 Owners' equity = $29,800 + $64,800 - $23,000 = $71,600

The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the capital spending (some textbooks call it net capital spending)?

(Net) capital spending = $371,920 - $348,200 + $46,080 = $69,800

1. Keyser Materials paid $7,500 in dividends and $28,311 in interest over the past year while net working capital increased from $13,506 to $18,219. The company purchased $42,000 in net new fixed assets and had depreciation expenses of $16,805. During the year, the firm issued $25,000 in net new equity and paid off $11,000 in long-term debt. The cash flow from assets or cash flow of the firm or free cash flow is $_______?

21,811 Cash flow from assets = ($28,311 + $11,000) + ($7,500 - $25,000) = $21,811

1. Which one of the following statements is correct? A) Net income is distributed either to dividends or retained earnings. B) A negative cash flow to stockholders indicates a firm received more from selling stock than it paid out to shareholders. C) (Net) capital spending is equal to ending net fixed assets minus beginning net fixed assets plus depreciation. D) Positive cash flow from assets indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period E) Issuing new stocks/bonds is generally considered as financing activity. F) All of the above

All of the above

1. Which one of the following statements is NOT correct? A) Highly liquid assets can be sold quickly at fair value. B) The market value tends to provide a better guide to the actual worth of an asset than does the book value C) On balance sheet, assets are listed in descending order of liquidity. D) Investing in fixed assets is considered as investment activity/decision. E) None of the above

None of the above

1. Which one of the following statements is correct? A) Corporation pay tax first before they pay interest payment. B) Cash flow from assets is defined as operating cash flow minus the change in net working capital plus (net) capital spending. C) Operating cash flow is defined as the cash that a firm generates from its normal business activities. D) None of the above

Operating cash flow is defined as the cash that a firm generates from its normal business activities.

1. Which one of the following statements is correct? A. Shareholders' equity is the residual value of a firm. B. Net working capital must be a positive value. C. An increase in cash reduces the liquidity of a firm. D. Equipment is generally considered a highly liquid asset.

Shareholders' equity is the residual value of a firm.