FIN 310 HW 2

Rondo Inc has current assets of 2755, net fixed assets of 9500, current liabilities of 1360, and LT debt of 4000. What is its Net Working Capital balance?

NWC = current assets - current liabilities = CA - CL = 2755 - 1360 = 1395

Arrendo, Inc., has current assets of 2630, net fixed assets of 9,500, current liabilities of 1360, and LT debt of 4000. What is the value of the shareholders' equity account for this firm?

6770 shareholders' equity = current assets + fixed assets - total liabilites = (CA + NFA) - (CL + LTD) = (2630+9500)-(1360+400) = 6770

Which one of the following statements in 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 e. depreciation increases total assets

Shareholders' equity is the residual value of a firm.

Which one of the following is defined as the total paid dividend by the total taxable income? a. average tax rate b. variable tax rate c. marginal tax rate d. absolute tax rate e. contingent tax rate

a. average tax rate

If a firm has a negative cash flow from assets every year for several years, the firm: a. may be continually increasing in size b. must also have a negative cash flow from operations each year c. is operating at a high level of efficiency d. is repaying debt every year e. has annual net loses

a. may be continually increasing in size

Andersen's Nursery has sales of $318,400, costs of $199,400, depreciation expense of $28,600, interest expense of $1,100, and a tax rate of 34%. The firm paid out 16500 in dividends. What is the addition to retained earnings? a. 36,909 b. 42,438 c. 44,141 d. 47,208 e. 47,615

b. 42438 addition to RE = [(sales-costs-depreciation-interest)(1-tax rate)] - dividends = [(318,400-199,400-28,600-1,100)(1-.34)]-16,500 = 42,438

Which one of the following statements concerning the balance sheet is correct? a. total assets equal total liabilities minus total equity b. assets are listed in descending order of liquidity c. current assets are equal to total assets minus net working capital d. shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt

b. assets are listed in descending order of liquidity

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 in net working capital? a. -2,800 b. -1,400 c. 1,400 d. 2,100 e. 2,800

c. 1,400 change in net working capital = (CAnew- CLnew)-(CAold-CLold) ∆NWC=(82600-85100)-(67200-71100)=1400

The Play House's December 31, 2009 balance sheet showed net fixed assests of 1,238,000 and the December 31, 2010 balance sheet showed net fixed assets of 1,416,000. The company's 2010 income statement showed a depreciation expense of 214,000. What was the firm's net capital spending for 2010? a. 36,600 b. 42,400 c. 392,600 d. 404,400 e. 416,600

c. 392,600 net capital spending = NFAnew- NFAold+depreciation = 1416000-1238000-214600 = 392,600

Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns? a. average tax rate b. variable tax rate c. marginal tax rate d. absolute tax rate e. contingent tax rate

c. marginal tax rate

Which one of the following will increase cash flow from assets but not affect the operating cash flow? a. increase in depreciation b. increase in account receivable c. sale of a fixed asset d. decrease in COGS e. increase in sales

c. sale of a fixed asset

Daniel's Market has sale of 36,600, costs of 28,400, depreciation expense of 3,100, and interest expense of 1,500. If the tax rate if 34%, what is the operation cash flow? a. 4,811 b. 5,279 c. 6,466 d. 6,976 e. 7,013

d. 6,976 EBIT = sales-COGS-depreciation =36600-28400-3100 = 5100 Tax=(EBIT-interest)(tax rate) = 1224 OCF = EBIT+depreciation-tax = 6976

Precision Manufacturing had the following operating results for 2010: sales = 38,900; COGS = 24,600; depreciation expense = 1,700; interest expense = 1,400; dividends paid = 1,000. At the beginning of the year, net fixed assets were 14,300, current assets were 8,700, and current liabilities were 6,600. At the end of the year, net fixed assets were 13,900, current assets were 9,200, and current liabilities were 7,400. The tax rate for 2010 was 34%. What is the cash flow from assets for 2010? a. 8,047 b. 8,292 c. 8,658 d. 9,492 e. 9,964

d. 9,492 operating cash flow = [(sales-COGS-depreciation-interest)(1-tax rate)]+depreciation+interest =[(38900-24600-1700-1400)(1-.34)]+ 1700+1400 = 10,492 cash flow from assests (CFA) = OFC-(end. net fixed assets-beg. fixed assets+depreciation)-[(end CA-end CL)- (beg. CA-beg. CL)] =10492-(13900-14300+1700)-[(9200- 7400)-(8700-6600)] = 9492

Firms that compile financial statements according to GAAP: a. record income and expenses at the time they affect the firm's cash flows b. have no discretion over the timing of recording either revenue or expense items c. must record all expenses when incurred d. can still manipulate their earnings to some degree e. record both income and expenses as soon as the amount for each can be ascertained

d. can still manipulate their earnings to some degree

Roscoe's purchased new machinery three years ago for $1.8 million. The machinery can be sold to Stewart's today for $1.2 million. Roscoe's current balance sheet shows net fixed assests of $960,000, current liabilities of $348,000, and net working capital of $121,000. If all the current assets were liquidated today, the company would receive $518,000 cash. The book value of the firm's assets today is ________ and the market value is _________. a. $1,081; $1,308,000 b. $1081; $1718000 c. $1307000; $1429000 d. $1429000; $1308000 e. $1429000; $1718000

e. $1429000; $1718000 book value = 121k+348k+960k = 1,429,000 market value = 518k+1.2M = 1,718,000

Which one of the following relates to a negative change in net working capital? a. increase in the inventory level b. sale of net fixed assets c. purchase of net fixed assets d. increase in current assets and decrease in current liabilities for the period e. increase in current liabilities with no change in current assets for the period

e. increase in current liabilities with no change in current assets for the period

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? a. positive operating cash flow b. negative cash flow to creditors c. positive cash flow to stockholders d. negative net capital spending e. positive cash flow from assets

e. positive cash flow from assets