Finance 320 - Ch. 2 Quiz

The Daily News has projected annual net income of $272,600, of which 28% will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock and a tax rate of 21%. What will be the cash flow to stockholders?

$1,328 .28(272,600) - 75,000 = 1,328

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 $145838. The interest paid was $6,430. What is the amount of the cash flow to creditors?

$11,129 CFTC = INT - Net New Borrowing CFCT = 6,430 - (68,219 - 72,918) = 6,430 - (-4,699) = 11,129 CFCT is interested in long-term debt, not short-term debt. So, total debt is not relevant here.

The Outlet started the year with $650,000 in the common stock account and $1,318,407 in the additional paid-in surplus account. The end-of-year balance sheet showed $720,000 and $1,299,310 in the same two accounts, respectively. What is the cash flow to stockholders if the firm paid $68,500 in dividends?

$17,597 Cash flow to stockholders = dividends paid - common stock issued = 68,500 - (1,299,310 + 720,000) - (1,318,407 + 650,000) = 68,500 - (2,019,310 - 1,968,407) = 68,500 - 50,903 = 17,597

CBC Industries has sales of $21,415, interest paid of $1,282, costs of $9,740, and depreciation of $1,480. What is the operating cash flow if the tax rate is 22%?

$9,714.14 Operating cash flow = EBIT + depreciation - taxes (21,412 - cost 9,740 - depreciation 1,480) = EBIT 10,195 + 1,480 depreciation - taxes Taxes = (10,195 EBIT - 1,282 interest paid) = 8,913 taxable income * .22 tax rate = 1,960.86 taxes OCF = 10,195 + 1,480 - 1,960.86 = 9,714.14

HiWay Furniture has sales of $316,000, depreciation of $47,200, interest expense of $41,400, costs of $148,200, and taxes of $16,632. The firm has net capital spending of $36,400 and a decrease in net working capital of $14,300. What is the cash flow from assets for the year?

$129,068 CFFA = OCF - NCS 36,400 - change in net working capital 14,300 EBIT = sales 316,000 - costs 148,200 - depreciation 47,200 = 120,600 Taxes = 16,632 OCF = 120,600 + 47,200 - 16,632 = 151,168 CFFA = 151,168 - 36,400 - 14,300 = 129,068

TJH, Inc. purchased $145,000 in new equipment and sold equipment with a net book value of $68,400 during the year. The equipment sale was made without any profit or loss. What is the amount of net capital spending if the depreciation was $38,600?

$76,600 Net capital spending = 145,000 - 68,400 = 76,600 Because the actual expenditure on capital and sale of capital figures are already provided, we are not backing them out from the balance sheet in the usual way. If we aren't given the figures, we would use (end NFA - beg NFA + depreciation)

For the year, B&K United increased current liabilities by $1,400, decreased cash by $1,200, increased net fixed assets by $340, increased accounts receivable by $200, and decreased inventory by $150. What is the annual change in net working capital?

-$2,550 Change in net working capital = (end asset - end liability) - (beg asset - beg liability) Change in NWC = -1,400 current liabilities - 1,200 cash + 200 acc receivable - 150 inventory = -2,550

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

Liquid assets are of value because they can be converted easily into cash and help the firm meet its obligations.

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.