FINA 5320 TAMUCC Quiz 1 Chapters 1-5

A firm has $820 in inventory, $3,200 in fixed assets, $670 in accounts receivable, $390 in accounts payable, $500 in long-term debt, and $360 in cash. What is the amount of the net working capital? a. $890 b. $960 c. $3,600 d. $3,340 e. $1,460

$1,460 NWC = $360 + 670 + 820 − 390

What is a downfall of having too much liquidity?

It is detrimental to shareholder wealth maximization. Having more liquid assets makes it easy to meet short term obligations but it lowers returns.

Describe liquidity.

Liquidity is a measure of how easily an asset can be converted to cash. Assets are listed in descending order of liquidity.

How do you calculate marginal tax rate?

Marginal tax rate is the rate paid on the next dollar of income.

What are the fours categories of agency costs?

Monitoring expenditures - for audit and control procedures Bonding expenditures - protect against the potential consequences of dishonest acts by managers Structuring expenditures - Use of managerial compensation plans to provide financial incentives for managerial actions consistent with the share price maximization. Opportunity costs -these result from the difficulties typically encountered by large organizations in responding to ew opportunities

What is new net borrowing?

Net new borrowing is simply the difference between the firm's ending long-term debt and its beginning long-term debt.

What is net present value?

Net present value (NPV) is a financial metric that seeks to capture the total value of a potential investment opportunity

Jack is considering adding toys to his general store. He estimates the cost of toy inventory will be $4,200. The remodeling and shelving costs are estimated at $1,500. Toy sales are expected to produce net annual cash inflows of $1,200, $1,500, $1,600, and $1,750 over the next four years, respectively. Should Jack add toys to his merchandise if he requires a three-year payback period? Why or why not? a. Yes; because the payback period is 2.94 years b. Yes; because the payback period is 2.02 years c. Yes; because the payback period is 3.80 years d. No; because the payback period is 2.02 years e. No; because the payback period is 3.80 years

No; because the payback period is 3.80 years

Which one of the following is a current liability? a. Amount due to a supplier in 18 months b. Note payable in nine months c. Estimated taxes just paid d. Loan payment due in 13 months e. Amount due from a customer in 30 days

Note payable in nine months

How do you calculate operating cash flow (OCF)?

OCF = EBIT + depreciation - taxes

What is the formula for the present value of a perpetuity?

PV of perpetuity = PMT/r PMT = payment r = rate

Describe a perpetuity

Perpetuities are set payments received forever—or into perpetuity. Perpetuities are valued using the actual interest rate

Which one of these characteristics best describes the primary advantage of being a limited partner rather than a general partner? a. Entitlement to a larger portion of the partnership's income b. Day-to-day management control of the business c. Profits free of any income taxation d. Overall control of the partnership e. Personal financial liability limited to the capital invested

Personal financial liability limited to the capital invested

How do you calculate working capital?

Working Capital = Current Assets - Current Liabilities

What is the goal of the firm?

"Maximize shareholder wealth" by maximizing the price of the existing common stock.

What is a current liability?

Current liabilities are a company's debts or obligations that are due to be paid to creditors within one year

Last year, Webster Farms had annual revenue of $87,200, depreciation of $11,600, cost of goods sold of $54,700, and administrative expenses of $8,300. The firm paid $3,200 in dividends and paid taxes of $2,646. What was the operating cash flow? a. $21,500 b. $18,300 c. $23,100 d. $21,554 e. $23,700

$21,554 OCF = $87,200 − 54,700 − 8,300 − 2,646

Assume mortgage rates increase to 7.5 percent and you borrow $329,000 for 30 years to purchase a house. What will your loan balance be at the end of the first 15 years of monthly payments? a. $238,854.07 b. $194,311.64 c. $248,153.73 d. $207,308.09 e. $192,938.72

$248,153.73 $329,000 = C{[1 − 1/(1 + .075/12)30(12)]/(.075/12)}C = $2,300.42PV = $2,300.42{[1 − 1/(1 + .075/12)(30 − 15)(12)]/(.075/12)}PV = $248,153.73

A small craft store located in a kiosk expects to generate annual cash flows of $6,800 for the next three years. At the end of the three years, the business is expected to be sold for $15,000. What is the value of this business at a discount rate of 15 percent? a. $30,100.07 b. $29,408.27 c. $25,388.67 d. $17,409.09 e. $19,477.67

$25,388.67 PV = [$6,800[(1 − 1/1.153)/.15] + $15,000/1.153

JJ's has net sales of $48,920, depreciation of $711, cost of goods sold of $31,890, administrative costs of $11,210, interest expense of $680, dividends paid of $450, and taxes of $974. What is the cash flow from operations as it will appear on the accounting statement of cash flows if the firm spent $274 on net working capital? a. $3,892 b. $3,056 c. $4,066 d. $3,667 e. $3,391

$3,892 Cash flow from operations = $48,920 − 31,890 − 11,210 − 680 − 974 − 274

Delfinio's has total revenues of $4,315, selling and administrative expenses of $611, depreciation of $309, cost of goods sold of $2,403, taxes of $178, dividends of $80, and interest expense of $168. What is the amount of the non-cash items? a. $481 b. $477 c. $248 d. $309 e. $567

$309

Starting today, Alicia is going to contribute $100 a month to her retirement account. Her employer matches her contribution by 50 percent. If these contributions remain constant, and she earns a monthly rate of .55 percent, how much will her savings be worth 40 years from now? a. $399,459.44 b. $300,456.74 c. $349,981.21 d. $299,189.16 e. $354,087.88

$354,087.88 AFVA Due = ($100 + 50)[(1.005540(12) − 1)/.0055](1.0055)

Quick Marts increased its cash by $418 this year. The firm's statement of cash flows shows total cash flow from financing activities of $246 and total cash flow from investing activities of −$184. What is the total cash flow from operations on this accounting statement? a. $480 b. $356 c. $427 d. $367 e. $391

$356 $418 = Total cash flow from operations − 184 + 246Total cash flow from operations = $356

Scott has been offered an employment contract for ten years at a starting salary of $65,000 with guaranteed annual raises of 5 percent. What is the current value of this offer at a discount rate of 7 percent? a. $638,724.17 b. $602,409.91 c. $558,845.85 d. $630,500.00 e. $525,000.00

$558,845.85 APV = $65,000({1 − [(1.05/1.07)10]}/(.07 − .05))APV = $558,845.85

Nu-Tools plans to set aside an equal amount of money each year, starting today, so that it will have $25,000 saved at the end of three years. If the firm can earn 4.7 percent, how much does it have to save annually? a. $7,596.61 b. $7,689.16 c. $8,004.67 d. $8,414.14 e. $8,333.33

$7,596.61 $25,000 = C[(1.0473 − 1)/.047](1.047)

Green Lumber has total sales of $387,200 on total assets of $429,600, current liabilities of $45,000, and $24,000 of dividends paid on net income of $57,700. Assume that all costs, assets, and current liabilities change spontaneously with sales. The tax rate and dividend payout ratios remain constant. If the firm's managers project a firm growth rate of 12 percent for next year, what will be the amount of external financing needed to support this level of growth? Assume the firm is currently operating at full capacity. a. $11,706 b. $14,350 c. $9,911 d. $5,667 e. $8,408

$8,408 EFN = $429,600(.12) − $45,000(.12) − $57,700(1.12)[1 − ($24,000/$57,700)]

Browning's has a debt-equity ratio of .47. What is the equity multiplier? a. 1.47 b. 0.53 c. 2.13 d. 1.13

1.47

Riverton Stores is all-equity financed and has net sales of $217,800, taxable income of $32,600, a return on assets of 11.5 percent, a tax rate of 21 percent, and total debt of $63,700. What are the values for the three components of the DuPont identity? a. 11.82 percent; .9725; 1.3975 b. 11.82 percent; 1.0282; 1.3975 c. 11.82 percent; .9725; .7156 d. 10.24 percent; 1.0282; .7156 e. 10.24 percent; 1.0282; 1.3975

11.82 percent; .9725; 1.3975 Profit margin = $32,600(1 − .21)/$217,800 Profit margin = .1182, or 11.82%Total assets = $32,600(1 − .21)/.115 Total assets = $223,947.83 Total asset turnover = $217,800/$223,947.83Total asset turnover = .9725 Equity multiplier = $223,947.83/($223,947.83 − 63,700)Equity multiplier = 1.3975

Kelso's has a return on equity of 16.2 percent, a debt-equity ratio of 44 percent, a capital intensity ratio of 1.08, a current ratio of 1.25, and current assets of $138,000. What is the profit margin? a. 12.15 percent b. 9.72 percent c. 7.48 percent d. 15.19 percent e. 13.69 percent

12.15 percent

Narrow Falls Lumber has total assets of $913,600, total debt of $424,500, net sales of $848,600, and net income of $94,000. The tax rate is 21 percent and the dividend payout ratio is 30 percent. What is the firm's sustainable growth rate? a. 13.97 percent b. 14.46 percent c. 15.54 percent d. 12.63 percent e. 14.91 percent

15.54 percent SGR = {[$94,000/($913,600 - 424,500)](1 - .30)}/(1 - {[$94,000/($913,600 - 424,500)](1 - .30)})

Given the personal income tax rates as shown, what is the average tax rate for an individual with taxable income of $118,700? Taxable Income 0−9,525 10% 9,526−38,700 12% 38,701−82,500 22% 82,501−157,500 24% a. 24.00 percent b. 22.36 percent c. 19.00 percent d. 21.94 percent e. 21.00 percent

19.00 percent

Weston's has sales of $38,900, net income of $2,400, total assets of $43,100, and total equity of $24,700. Interest expense is $830. What is the common-size statement value of the interest expense? a. 2.13 percent b. 3.08 percent c. 1.93 percent d. 2.49 percent e. 3.46 percent

2.13 percent Common-size interest expense = $830/$38,900

Homer is considering a project with cash inflows of $950 a year for Years 1 to 4, respectively. The project has a required discount rate of 11 percent and an initial cost of $2,100. What is the discounted payback period? a. 3.05 years b. 2.68 years c. 3.39 years d. 2.21 years e. Never

2.68 years

Deep Falls Timber has net sales of $642,100, net income of $50,800, dividends paid of $12,700, total assets of $658,000, and total equity of $444,400. What is the internal growth rate? a. 5.83 percent b. 6.24 percent c. 6.15 percent d. 5.18 percent e. 7.70 percent

6.15 percent IGR = {($50,800/$658,000)[1 − ($12,700/$50,800)]}/(1 − {($50,800/$658,000)[1 − ($12,700/$50,800)]})

The Smart Bank wants to be competitive based on quoted loan rates and thus must offer loans at an annual percentage rate of 7.9 percent. What is the maximum rate the bank can actually earn based on this quoted rate? a. 7.90 percent b. 8.18 percent c. 8.20 percent d. 8.22 percent e. 8.39 percent

8.22 percent EAR = e.079 − 1EAR = .0822, or 8.22%

What cash budgeting means or refers to?

A cash budget is an estimation of the cash flows of a business over a specific period of time. This could be for a weekly, monthly, quarterly, or annual budget. This budget is used to assess whether the entity has sufficient cash to continue operating over the given time frame

What is a corporation?

A corporation is a distinct legal entity composed of one or more owners. Stockholders are the true owners through equity of common and preferred stocks, they are paid with cash dividends or realizing capital gains through increases in price of their common stock shares.

What is the income statement?

A report of net income or loss over an accounting period Revenues - expenses = net income

Who is a stakeholder?

A stakeholder is a party with an interest in an enterprise; stakeholders in a corporation include investors, employees, customers, and suppliers.

What is the balance sheet?

A summary statement of the firm's financial position at a given point in time

What is the Sarbanes-Oxley Act?

An act passed into law by Congress in 2002 to establish strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor confidence.

What is agency cost?

An agency cost is a type of internal company expense, which comes from the actions of an agent acting on behalf of a principal.

Describe an annuity.

An annuity is a set payment received for a set period of time. Valuing an annuity requires compounding the stated interest rate. Payment occurs at the end of each period.

What is the accounting equation?

Assets = Liabilities + Owner's Equity

How do you calculate average tax rate?

Average tax rate = tax bill / taxable income

What are the four accounting statements?

Balance sheet Income Statement Statement of Cash Flows Statement of Stockholders Equity

Which one of the following statements concerning liquidity is correct? a. Liquid assets generally earn higher rates of return than fixed assets. b. If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid. c. Liquid assets are defined as those assets obtained within the past year. d. The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties. e. Balance sheet accounts are listed in order of decreasing liquidity.

Balance sheet accounts are listed in order of decreasing liquidity.

What does capital structure refer to?

Capital structure refers to the specific mix of debt and equity used to finance a company's assets and operations.

Which statement expresses all relative account values as a percentage of total assets? a. Pro forma balance sheet b. Common-size income statement c. Statement of cash flows d. Pro forma income statement e. Common-size balance sheet

Common-size balance sheet

How do you calculate the common size statement?

Divide sales into each category.

How do you calculate the effective annual rate?

EAR = (1 + r/m)^m-1

How do you calculate the equity multiplier?

EM = 1 + D/E ratio ​Debt/Equity=Total Liabilities​​/Total Shareholders' Equity

What did the Sarbanes-Oxley Act do?

Established an oversight board to monitor the accounting industry, tightened audit regulations, and controls, toughened penalties against executives who commit corporate fraud, strengthened accounting disclosure requirements, established corporate board structure and membership guidelines, established guidelines with regard to analyst conflicts of interest, mandated instant disclosure of stock sales by corporate executives, increased securities regulation authority and budgets for auditors and investigators.

How do you calculate payback?

For example, if payback happens between years 2 & 3, you will take 2 and add that to the investment minus the cash flow for the second year and then divide that by the cash flow for year 3 minus the cash flow for year 2. So... 2 + (investment - year 2 CF) / (year 3 CF - year 2CF)

How are liabilities listed on the balance sheet?

In order of maturity (how soon an obligation is to be paid)

Which one of these represents the best means of increasing current shareholder value? a. Maximizing the capital rate of the firm b. Increasing the current value of the overall firm c. Forsaking all new projects d. Minimizing the overall size of the firm e. Decreasing the number of employees

Increasing the current value of the overall firm

How do you calculate ROE?

ROE = PM*TATO*EM ROE = Net income/Total Equity ROE = ROA*EM

How do you calculate sustainable growth rate?

SGR = (ROE*b)/[1-(ROE*b)] b = 1-payout

What are the disadvantages of a corporation?

Separation of ownership and management (agency problem) Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate, while dividends paid are not tax deductible)

What are the components of the DuPont Analysis?

The Dupont analysis is an expanded return on equity formula, calculated by multiplying the net profit margin by the asset turnover by the equity multiplier ROE = Net Income/Sales X Sales/Total Assets X Total Assets/Average Shareholder Equity

What is the effective annual rate

The Effective Annual Rate (EAR) is the rate of interest actually earned on an investment or paid on a loan as a result of compounding the interest over a given period of time. It is usually higher than the nominal rate and is used to compare different financial products that calculate annual interest with different compounding periods - weekly, monthly, yearly, etc. Increasing the number of compounding periods makes the effective annual interest rate increase as time goes by.

Which statement concerning corporations is correct? a. There are time limits placed on the transfer of ownership. b. The ability to raise capital is limited to that of a general partnership. c. Primary shareholders have unlimited liability for corporate debts. d. The entity can outlive all of its initial owners. e. When the last original owner dies or withdraws, the entity is terminated.

The entity can outlive all of its initial owners.

What is the equity multiplier?

The equity multiplier is a risk indicator that measures the portion of a company's assets that is financed by stockholder's equity rather than by debt. Total Assets/Total Equity 1 + (TL/TE) 1/(1-debt ratio) EM = 1 means the firm is 100% equity financed EM > 1 indicated the presence of debt in capital structure

What side of the balance sheet are uses of money?

The left side (assets)

What the primary advantage of being a limited partner means compared to general

The main advantage for limited partners is that their personal liability for business debts is limited. A limited partner can only be held personally responsible up to the amount he or she invested. Limited partners enjoy a protected investment, knowing they cannot lose more money than they've contributed

What is the payback period?

The number of years required to recover a project's cost, or "How long does it take to get our money back?" Calculated by adding project's cash inflows to its cost until the cumulative cash flow for the project turns positive.

What are stockholders and what do they do?

The owners of a corporation. Stockholders elect the board of directors, which has the ultimate authority to guide corporate affairs and set general policy. The board is usually composed of key corporate personnel and outside directors. The CEO reports to the board directly. The owners do not have a direct relationship with management but give their input through board elections and voting on major charter issues.

Which one of these best fits the description of an agency cost? a. The costs of increasing the dividend payment per share b. The benefits received from reducing production costs per unit c. The payment of corporate income taxes d. The payment required for an outside audit of the firm e. The payment of interest on a firm's debts

The payment required for an outside audit of the firm

What do each of the components of the DuPont Analysis measure?

The profit margin ratio compares profit to sales and tells you how well the company is handling its finances overall Total Asset Turnover measures how well a company is managing its assets to generate revenue. The equity multiplier is a risk indicator that measures the portion of a company's assets that is financed by stockholder's equity rather than by debt

What side of the balance sheet are sources of money?

The right side (liabilities and SE)

What are the two components of liquidity?

Time - how long it takes to convert an asset to cash Money - the value that must be relinquished to convert an asset to cash quickly.

Lucie is reviewing a project with an initial cost of $38,700 and cash inflows of $9,800, $16,400, and $21,700 for Years 1 to 3, respectively. Should the project be accepted if it has been assigned a required return of 9.75 percent? Why or why not? a. Yes; because the IRR exceeds the required return by .34 percent b. Yes; because the IRR is less than the required return by .28 percent c. Yes; because the IRR exceeds the required return by .28 percent d. No; because the IRR exceeds the required return by .34 percent e. No; because the IRR is only 9.69 percent

Yes; because the IRR exceeds the required return by .34 percent 0 = −$38,700 + $9,800/(1 + IRR) + $16,400/(1 + IRR)2 + $21,700/(1 + IRR)3IRR = 10.09% Excess return = 10.09% − 9.75 Excess return = .34%

Anne is considering two independent projects with 2-year lives. Both projects have been assigned a discount rate of 13 percent. She has sufficient funds to finance one or both projects. Project A costs $38,500 and has cash flows of $19,400 and $28,700 for Years 1 and 2, respectively. Project B costs $41,000, and has cash flows of $25,000 and $22,000 for Years 1 and 2, respectively. Which project, or projects, if either, should you accept based on the profitability index method and what is the correct reason for that decision? a. You should accept both projects since both of their PIs are positive. b. You should accept Project A since it has the higher PI and you can only select one project. c. You should accept both projects since both of their PIs are greater than 1. d. You should only accept Project A since it is the only project with a PI greater than 1. e. Neither project is acceptable.

You should only accept Project A since it is the only project with a PI greater than 1. PIA = ($19,400/1.13 + $28,700/1.132)/$38,500PIA = 1.03 PIB = ($25,000/1.13 + $22,000/1.132)/$41,000PIB= .96

What is the cash flow to creditors?

a firm's interest payments to creditors less net new borrowing Cash flow to creditors = interest paid + retirement of debt - proceeds from new debt Cash flow to creditors = interest paid - new net borrowing

The process of planning and managing a firm's long-term assets is called: a. working capital management. b. cash management. c. cost accounting management. d. capital budgeting. e. capital structure management

capital budgeting

What is book value?

cost - accumulated depreciation

An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the _____ rate. a. stated interest b. compound interest c. effective annual d. periodic interest e. daily interest

effective annual

An annuity stream of cash flow payments is a set of: a. equal cash flows occurring at equal periods of time over a fixed length of time. b. equal cash flows occurring each time period forever. either equal or varying cash flows occurring at set intervals of time for a fixed period. c. increasing cash flows occurring at set intervals of time that go on forever. d. arbitrary cash flows occurring each time period for no more than 10 years.

equal cash flows occurring at equal periods of time over a fixed length of time.

What are noncash items?

expenses charged against revenues that do not directly affect cash flow, such as depreciation

The book value of assets: a. is determined under Generally Accepted Accounting Principles (GAAP) and is based on the cost of those assets. b. represents the true market value of those assets according to GAAP. c. is always the best measure of the company's value to an investor. d. is always higher than the replacement cost of the assets. e. is shown on the firm's income statement.

is determined under Generally Accepted Accounting Principles (GAAP) and is based on the cost of those assets.

An investment is acceptable if the payback period: a. is less than some pre-specified period of time. exceeds the life of the investment. b. is negative. c. is equal to or greater than some pre-specified period of time. d. is equal to, and only if it is equal to, the investment's life.

is less than some pre-specified period of time.

Payback is frequently used to analyze independent projects because: a. it considers the time value of money. b. all relevant cash flows are included in the analysis. c. it is easy and quick to calculate. d. it is the most desirable of all the available analytical methods from a financial perspective.

it is easy and quick to calculate.

What are the advantages of a corporation?

limited liability, unlimited life, separation of ownership and management, ability to own shares in several companies without having to work for them, liquidity, and ease of raising capital.

Ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as: a. asset management ratios. b. long-term solvency measures. c. liquidity measures. d. profitability ratios. e. market value ratios.

liquidity measures.

A stakeholder is any person or entity: a. owning shares of stock of a corporation. b. owning bonds or other long-term debt issued by a corporation. c. that initially started a firm and currently has management control over that firm. d. to whom the firm currently owes money. e. other than a stockholder or creditor who potentially has a financial interest in a firm.

other than a stockholder or creditor who potentially has a financial interest in a firm.

A perpetuity differs from an annuity because: a. perpetuity cash flows vary with the rate of inflation. b. perpetuity cash flows vary with the market rate of interest. c. perpetuity cash flows are variable while annuity payments are constant. d. perpetuity cash flows never cease. e. annuity cash flows occur at irregular intervals of time.

perpetuity cash flows never cease.

The profitability index of an investment project is the ratio of the: a. average net income from the project to the average investment cost. b. internal rate of return to the current market rate of interest. c. net present value of the project's cash outflows divided by the net present value of its inflows. d. net present value of every cash flow related to the project compared to the initial cost. e. present value of the cash flows subsequent to the initial cost compared to the initial cost.

present value of the cash flows subsequent to the initial cost compared to the initial cost.

The net present value of a project is equal to the: a. present value of the future cash flows. b. present value of the future cash flows minus the initial cost. c. future value of the future cash flows minus the initial cost. d. future value of the future cash flows minus the present value of the initial cost. e. sum of the project's anticipated cash inflows.

present value of the future cash flows minus the initial cost.

The financial ratio measured as net income divided by sales is known as the firm's: a. profit margin. b. return on assets. c. return on equity. d. asset turnover.

profit margin

A firm's capital structure refers to the firm's: a. mixture of various types of production equipment. b. investment selections for its excess cash reserves. c. combination of cash and cash equivalents. d. combination of accounts appearing on the left side of its balance sheet. e. proportions of financing from current and long-term debt and equity.

proportions of financing from current and long-term debt and equity.

One intent of the Sarbanes Oxley Act of 2002 is to: a. prevent minority investors from making demands on corporations. b. protect corporate directors from frivolous lawsuits. c. guarantee the repayment of all future personal loans to corporate officers and directors. d. protect investors from corporate abuses. e. require all public corporations to "go dark" within the next twenty years.

protect investors from corporate abuses.

The ultimate control of a corporation lies in the hands of the corporate: a. board of directors. b. stockholders. c. president. d. chief executive officer. e. chairman of the board.

stockholders.

All else constant, the net present value of a typical investment project increases when: a. the discount rate increases. b. each cash inflow is delayed by one year. c. the initial cost of a project increases. d. the required rate of return decreases. e. all cash inflows occur during the last year instead of periodically throughout the project's life.

the required rate of return decreases.

What is the ordinary annuity formula?

​FVOrdinary Annuity​=C×[ ( 1 + i )^n − 1​ / i ] where: C=cash flow per period i=interest rate n=number of payments​

What is the net present value of a project with an initial cost of $36,900 and cash inflows of $13,400, $21,600, and $10,000 for Years 1 to 3, respectively? The discount rate is 13 percent. a. −$287.22 b. −$1,195.12 c. −$1,350.49 d. $204.36 e. $797.22

−$1,195.12

During the year, Lasko's repaid $12,500 in long-term debt, borrowed $8,400, paid $611 in interest and $740 in dividends, and had an operating cash flow of $16,207. The firm acquired $33,500 in new fixed assets and sold $8,400 of old assets. Net working capital declined by $1,592 during the year. What is the annual cash flow to stockholders? a. $1,200 b. −$2,590 c. −$8,828 d. −$12,012 e. $2,800

−$12,012 Cash flow of the firm = $16,207 − 33,500 + 8,400 − (−$1,592) Cash flow of the firm = −$7,301 CFC = $611 + 12,500 − 8,400CFC = $4,711CFS = −$7,301 − 4,711CFS = −$12,012

JK Meadows has beginning current liabilities of $14,602 and total liabilities of $35,418. At the end of the year, the current liabilities are $15,311 and the total liabilities are $37,604. During the year, the firm paid $680 in dividends and $1,320 in interest. What is the cash flow to creditors? a. $3,230 b. $2,797 c. $3,135 d. −$157 e. −$267

−$157 CFC = $1,320 − [($37,604 − 15,311) − ($35,418 − 14,602)]CFC = −$157