chapter 2 problems

Which of the following would most likely be considered the most liquid asset?

A share of IBM common stock

An increase in the depreciation expense will do which of the following for a firm with taxable income of $80,000? I. Increase net income. II. Decrease net income. III. Increase the cash flow from assets. IV. Decrease the cash flow from assets.

II. Decrease net income. III. Increase the cash flow from assets.

Which one of the following statements related to liquidity is correct

Liquid assets are of value to a firm because they can be converted easily into cash and help the firm meets its obligations

As of 2018, which one of the following statements concerning corporate income taxes is correct?

The lowest marginal rate is 21 percent.

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?

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 recievable - 150 inventory Change in NWC= -2,550

Which one of the following will decrease the value of a firm's net working capital?

Selling inventory at a loss compared to its book value.

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised.

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 $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors?

C) $11,129 Cash flow to creditors= interest paid- net new borrowing (long term debt) Interest paid (6,430)- long term debt(68,219-72,918)= 11,129

The What-Not Shop owns the building in which it is located. This building initially cost $647,000 and is currently appraised at $819,000. The fixtures originally cost $148,000 and are currently valued at $65,000. The inventory has a book value of $319,000 and a market value equal to 1.1 times the book value. The shop expects to collect 96 percent of the $21,700 in accounts receivable. The shop has $26,800 in cash and total debt of $414,700. What is the market value of the shop's equity?

Market value of the shop = 819,000 building appraisal + 65,000 current value of fixture + 1.1 market value rate(319,00 inventory book value) + .96 collect acc receivable (21,700 acc receivable) + 28,600 cash - total debt 414,700 Market value = 867,832

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?

CFFA=OCF - NCS 36,400 - change in net working cap 14,300 EBIT= sales 316,000 - costs 148,200 - depreciation 47,200 = 120,600 Taxes= 16,632 OCF= EBIT 120,600 + Depreciation 47,200 - 16,632 = 151,168 Or OCF= 316,000 sales - 148,200 costs - 16,632 taxes = 151,168 CFFA= 151,168 OCF - NCS 36400 - NWC -14,300 = 129,068

The Daily News has projected annual net income of $272,600, of which 28 percent 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?

Cash flow to stockholder= dividends paid- net new equity raised (CS paid in surplus) Dividends paid (272,600 x .28)= 76,328 - CS paid in surplus 75,000 = 1,328

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?

Cash flow to stockholders = dividends paid - Common stock issued = dividends 68,500 - (1299,310+ 720,000)- (1318407+ 650000)= = dividends 68,500 - (2,019,310-1,968,407)= 50,903 = 17,597 cash flow to stockholders

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?

Net capital spending = $145,000 − 68,400 Net capital spending = $76,600 Note: 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 not given the figures, we would use (End NFA - Beg NFA plus depreciation).

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 percent?

Operating cash flow = EBIT + depreciation - taxes (21,415- cost 9,740- depreciation 1,480)= 10,195 EBIT + 1,480 depreciation - taxes Taxes = (10,195 EBIT - 1,282 interest paid) =8,913 taxable income x .22 tax rate = 1,960.86 taxes OCF= 10,195 EBIT + 1,480 depreciation - 1,960.86 taxes = 9,714.14

Which one of the following must be true if a firm had a negative cash flow from assets?

The firm utilized outside fundingNegative cash flow= firm raised more money by borrowing and selling stock than it paid out to creditors and Stockholders that year.