Corporate finance

At the beginning of the year, Smidovec Plumbing had current liabilities of $15,932 and total debt of $68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is the amount of net new borrowing for the year?

(72415-13870) - (68847-15932) = $5,630

Humphries has cash of $10,000, accounts receivable of $2,500, accounts payable of $900, and inventory of $1,200. What is the value of the quick ratio?

(Current assets - Inventory) / Currrent liabilities ??

Boutique Marketing has total debt of $4,910 and a debt-equity ratio of .52. What is the value of the total assets?

4910/0.52 then add to original amount =. $14,352.31

Pavlak Surveyors has beginning current assets of $1,360, beginning current liabilities of $940, ending current assets of $1,720, and ending current liabilities of $1,080. What is the change in net working capital?

=(1720-1080)-(1360-940) = 220

Which one of the following statements is correct? A. An increase in the depreciation expense will not affect the cash coverage ratio. B. Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. C If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. D. The debt-equity ratio can be computed as 1 plus the equity multiplier. E. An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity.

A. An increase in the depreciation expense will not affect the cash coverage ratio.

A furniture store is considering adding kitchen appliances to its offerings. Which one of the following is the best example of an incremental cash flow related to the appliances? A. Selling furniture to appliance customers B. Using the store's billing system for appliance sales C. Having the current store manager also oversee appliance sales D. Moving furniture to provide floor space for the appliances E. Paying the rent for the store

A. Selling furniture to appliance customers

Which one of the following statements concerning stock exchanges is correct? A. Some large companies are listed on Nasdaq. B. Most debt securities are traded on the NYSE. C. The exchange with the strictest listing requirements is Nasdaq. D. Nasdaq is a broker market. E.The NYSE is a dealer market.

A. Some large companies are listed on Nasdaq.

A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project? A. The cash flow in Year 2 is valued just as highly as the cash flow in Year 1. B. The project's cash flow in Year 3 is discounted by a factor of (1 + R)^3. C. The cash flow in Year 3 is ignored. D.The project is acceptable whenever the payback period exceeds three years. E. The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted.

A. The cash flow in Year 2 is valued just as highly as the cash flow in Year 1.

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will: A. decrease the quick ratio. B. increase the current ratio. C. decrease the cash coverage ratio. D. increase the net working capital to total assets ratio. E. increase the cash ratio

A. decrease the quick ratio.

As of 2018, firms can take a "bonus" depreciation deduction of 100 percent of the cost of an eligible asset in the year the asset was purchased. If a firm elects to take the bonus depreciation instead of using MACRS depreciation, the project's Year 1 operating cash flow will _______ in the amount of ________. A. increase; the depreciation expense times the tax rate B. increase; the reduction in depreciation expense C. decrease; the additional depreciation expense times the tax rate D. decrease; the reduction in depreciation expense E. decrease; the additional depreciation expense

A. increase; the depreciation expense times the tax rate

Net present value: A. is the best method of analyzing mutually exclusive projects B. is less useful than the internal rate of return when comparing different-sized projects. C. is the easiest method of evaluation for nonfinancial managers. D. is very similar in its methodology to the average accounting return. E. cannot be applied when comparing mutually exclusive projects.

A. is the best method of analyzing mutually exclusive projects

When evaluating two mutually exclusive projects, the final decision on which project to accept ultimately depends upon which one of the following? A. Accept Project A because it has the lower required return B. Accept Project B and reject Project A based on the NPVs C. Accept Project A because it has the shortest payback period D. Accept both projects because both NPVs are positive E. Accept Project A and reject Project B based on their AARs

B. Accept Project B and reject Project A based on the NPVs

A project has an initial cost of $52,700 and a market value of $61,800. What is the difference between these two values called? A. Profitability index B. Net present value C. Discounted payback D. Payback value E. Accounting return

B. Net present value

The current book value of a fixed asset that was purchased two years ago is used in the computation of which one of the following? A. Change in net working capital B. Tax due on the current salvage value of that asset C. Depreciation tax shield D. Current year's operating cash flow E. MACRS depreciation for the current year

B. Tax due on the current salvage value of that asset

Ellis-Clay is replacing a machine that has worn out. The replacement machine will not impact sales or operating costs and will not have any salvage value at the end of its five-year life. The firm has a tax rate of 22 percent, uses straight-line depreciation over an asset's life, ignores bonus depreciation options, and has a positive net income. Given this, which one of the following statements is correct? A. The new machine creates erosion effects. B. The new machine will generate positive operating cash flows. C. The new machine will create a cash outflow when the firm disposes of the machine at the end of its life. D. The new machine will have a zero rate of return. E. As a project, the new machine has a net present value equal to minus one times the machine's purchase price.

B. The new machine will generate positive operating cash flows.

A ______ has all the respective rights and privileges of a legal person. A. sole proprietorship B. corporation C. limited partnership D. limited liability company E. general partnership

B. corporation

Corporate bylaws: A. must be amended should a firm decide to increase the number of shares authorized. B. determine how a corporation regulates itself. C. describe the intended life and purpose of the organization. D. cannot be amended once adopted. E. define the name by which the firm will operate.

B. determine how a corporation regulates itself.

Cash flow from assets is also known as the firm's: A. capital structure. B. free cash flow. C. historical cash flow. D. equity structure. E. hidden cash flow.

B. free cash flow.

As the degree of financial leverage increases, the: A. less debt a firm has per dollar of total assets. B. probability a firm will encounter financial distress increases. C. accounts payable balance decreases. D. amount of a firm's total debt decreases. E. number of outstanding shares of stock increases.

B. probability a firm will encounter financial distress increases.

Parsa's Organics currently has $56 in debt for every $100 in equity. If the company were to use some of its cash to decrease its debt, while maintaining its current equity and net income, which one of the following would decrease? A. Return on equity B. Total asset turnover C. Equity multiplier D. Return on assets E. Net profit margin

C. Equity multiplier

Which one of the following methods of analysis provides the best information on the benefits to be received from a project per dollar invested? A. Payback B. Average accounting return C. Profitability index D. Net present value E. Internal rate of return

C. Profitability index

Which one of the following is the best example of two mutually exclusive projects? A. Building a furniture store beside a clothing outlet in the same shopping mall B. Promoting two products during the same television commercial C. Waiting until a machine finishes molding Product X before being able to mold Product Z D. Using an empty warehouse to store both raw materials and finished goods E. Producing both plastic forks and spoons on the same assembly line

C. Waiting until a machine finishes molding Product X before being able to mold Product Z

A sole proprietorship: A. is taxed the same as a C corporation. B . can generally raise large sums of capital quite easily. C. has a limited life. D. can transfer ownership of the firm more easily than a corporation can. E. is the most regulated form of organization.

C. has a limited life.

The length of time a firm must wait to recoup the money it has invested in a project is called the: A. valuation period. B. profitability period. C. payback period. D. internal return period. E. discounted cash period.

C. payback period.

Which one of the following actions by a financial manager is most apt to create an agency problem? A. Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales B. Refusing to borrow money when doing so will create losses for the firm C. Refusing to lower selling prices if doing so will reduce the net profits D. Increasing current profits when doing so lowers the value of the company's equity E. Refusing to expand the company if doing so will lower the value of the equity

D. Increasing current profits when doing so lowers the value of the company's equity

Hello Robin! has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?

Days in inventory = 365 / ($64,003 / $1,810) = 10.322 daysDays' sales in receivables = 365 / ($138,609 / $4,511) = 11.879 daysTotal days in inventory and receivables = 10.322 + 11.879 = 22.20 days

Which one of these is the least important factor to consider when comparingthe financial situations of utility companies that generate electric power and have the same SIC code? A. Methods of power generation B. Type of ownership C. Government regulations affecting the firm D. Fiscal year end E Number of part-time employees

E Number of part-time employees

Which one of the following types of costs was incurred in the past and cannot be recouped? A. Erosion B. Incremental C. Opportunity D. Side E. Sunk

E. Sunk

The depreciation tax shield is best defined as the: A. amount of tax that is due when an asset is sold. B. amount of tax that is saved when an asset is purchased. C. amount by which the aftertax depreciation expense lowers net income. D. tax that is avoided when an asset is sold as salvage. E. amount of tax that is saved because of the depreciation expense.

E. amount of tax that is saved because of the depreciation expense.

Ignoring bonus depreciation, the net book value of equipment will: A. increase over the taxable life of an asset. B. decrease at a constant rate when MACRS depreciation is used. C. vary in response to changes in the market value of that equipment. D. remain constant over the life of the equipment. E. decrease slower under straight-line depreciation than under MACRS.

E. decrease slower under straight-line depreciation than under MACRS.

A strength of the average accounting return (AAR) method of project analysis is the fact that AAR: A. uses a cutoff rate. B. considers the time value of money. C. ignores the issue of taxes. D. is based on accounting values. E. is easy to calculate.

E. is easy to calculate.

Pro forma financial statements can best be described as financial statements: A. expressed in real dollars, given a stated base year. B. that express the assets as a percentage of total assets, and the costs as a percentage of sales. C. for which all accounts are expressed as a percentage of last year's values. D. expressed in a foreign currency. E. that state projected values for future time periods.

E. that state projected values for future time periods.

Lewis & Price Corporation paid $700 in dividends and $320 in interest this past year. Common stock remained constant at $6,800 and retained earnings decreased by $180. What is the net income for the year?

Net income = Dividends paid + Change in retained earnings= 700 + (-180)Net income = $520

Vasquez Pottery has shareholders' equity of $218,700. The firm owes a total of $141,000, only 40 percent of which is payable within the next 12 months. The firm has net fixed assets of $209,800. What is the amount of the net working capital?

Net working capital = current assets - current liabilities141,000(0.6) + 218,700 - 209,800 = 93,500

The income statement of Lashari Design 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 the noncash expenses?

Non cash expenses = Depreciation = $1,611

Steele Video has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 21 percent. What is the value of the cash coverage ratio?

sales - operating expenses - depreciation. (EBIT + Depreciation) / Interest =96400-53800-7100 = 35500 =(35500+7100)/2800 = 15.21428571