BFIN 322 Chapter 1-3 Exam Review

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

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

Roscoe's fixed assets were purchased three years ago for $1.8 million. These assets can be sold to Stewart's today for $1.2 million. Roscoe's current balance sheet shows net fixed assets 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 ____.

$1,429,000; $1,718,000 Book value = $121,000 + 348,000 + 960,000 = $1,429,000 Market value = $518,000 + 1,200,000 = $1,718,000

For Year 2016, Precision Masters had sales of $42,900, cost of goods sold of $26,800, depreciation expense of $1,900, interest expense of $1,300, and dividends paid of $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 was 34 percent. What is the cash flow from assets for 2016?

$10,514 EBIT = [($42,900 -26,800-1,900) = $14,200 Taxes = ($14,200 - 1,300)(.34)= $4,386 OCF = $14,200 + 1,900 - 4,386 = $11,714 CFA = $11,714- ($13,900 -14,300 + 1,900) - [($9,200 -7,400) -($8,700 -6,600)] = $10,514

For the year, Uptowne Furniture had sales of $818,790, costs of $748,330, and interest paid of $24,450. The depreciation expense was $56,100 and the tax rate was 34 percent. At the beginning of the year, the firm had retained earnings of $172,270 and common stock of $260,000. At the end of the year, retained earnings was $158,713 and common stock was $280,000. Any tax losses can be used. What is the amount of the dividends paid for the year.

$6,898 Net income = [($818,790 -748,330-56,100 -24,450)(1 -.34)] =-$6,659 Dividends paid = -$6,659 - ($158,713-172,270) = $6,898

The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net income for this firm?

$76,428 Net income = ($398,600 -254,800 -26,400 -1,600) (1 -.34) = $76,42

Which one of the following is an intangible fixed asset?

Copyright

What is a capital structure decision?

Establishing the preferred debt-equity level

A sole proprietorship

Has its profits taxed as personal income

Which of the following is a working capital decision?

How much cash should the firm keep in reserve?

One advantage of the corporate form of organization is

ability to raise larger sums of equity capital than other organizational forms

Probably the least effective means of aligning management goals with shareholder interests is

automatically increasing management salaries on an annual basis

The goal of financial management is to increase the

current market value per share

A firm's liquidity level decreases when

inventory is purchased with cash

Limited Liability companies are primarily designed to

provide limited liability while avoiding double taxation

A negative cash flow to stockholders indicates a firm

received more from selling stock than it paid out to shareholders

Primary Market transaction example

sale of 1,000 shares of newly issued stock by Alt Company to Miquel

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the

secondary market