Finance II

Which one of the following represents the most liquid asset?

$100 of inventory that is sold today for $100 cash

A firm has $680 in inventory, $2140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital?

$720 NWC = $680 + 210 + 80 - 250 NWC = $720

At the beginning of the year, the long-term debt of a firm was $72918 and total debt was $138407. At the end of the year, long-term debt was $68219 and total debt was $145838. The interest paid was $6430. What is the amount of the cash flow to creditors?

$11129 CFC = $6430 - ($68219 - 72918) CFC = $11129

Nu Furniture has sales of $241000, depreciation of $32200, interest expense of $35700, costs of $103400, and taxes of $14637. What is the operating cash flow for the year?

$122963 OCF = $241000 - 103400 - 14637 OCF = $122963

At the beginning of the year, a firm had current assets of $121306 and current liabilities of $124509. At the end of the year, the current assets were $122418 and the current liabilities were $103718. What is the change in net working capital?

$21903 Change in NWC = ($122418 - 103718) - ($121306 - 124,509) Change in NWC = $21903

Nielson Auto Parts had beginning net fixed assets of $218470 and ending net fixed assets of $209411. During the year, assets with a book value of $6943 wer sold. Depreciation for the year was $42822. What is the amount of net capital spending?

$33763 Net capital spending = $209411-218470 + 42822 Net capital spending = $33763

Noncash items refer to

expenses that do not directly affect cash flows

Net working capital is defined as

fixed assets minus long-term liabilities

Cash flow from assets is also known as the firm's

free cash flow

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?

good reputation of the company

As the degree of financial leverage increases, the

probability a firm will encounter financial distress increases

HiWay Furniture has sales of $316000, depreciation of $47200, interest expense of $41400, costs of $148200, and taxes of $16632. The firm has net capital spending of $36400 and a decrease in net working capital of $14300. What is the cash flow from assets for the year?

$129068 OCF = $316000 - 148200 - 16632 OCF = $151168 CFA = $151168 - 36400 - (-$14300) CFA = $129068

Galaxy Interiors income statement shows depreciation of $1611, sales of $21,415, interest paid of $1282, net income of $1374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?

$1611 - noncash expenses = depreciation=$1611

Williamsburg Markets has an operating cash flow of $4267 and depreciation of $1611. Current assets decreased by $1356 while current liabilities decreased by $2662, and net fixed assets decreased by $382 during the year. What is free cash flow for the year?

$1732 Change in NWC = $1356 - (-$2662) Change in NWC = $1306

Your firm has total assets of $4900, fixed assets of $3200, long-term debt of $2900, and short-term debt of $1400. What is the amount of net working capital?

$300 NWC = $4900 - $3200 - 1400 NWC = $300

A firm has net working capital of $560. Long-term debt is $3970, total assets are $7390, and fixed assets are $3910. What is the amount of total liabilities?

$6890 current assets = $7390 - $3910 current assets = $3480 Current liabilities = $3480 - 560 current liabilities = $2920 total liabilities = $2920 + 3970 total liabilities = $6890

Beach Front Industries has sales of $546000, costs of $295000, depreciation expense of $37000, interest expense of $15000 and a tax rate of 21 percent. The firm paid $59000 in cash dividends. What is the addition to retained earnings?

$98210 net income = ($546000-295000-37000-15000)(1-21) net income = $157210

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Balance sheet

Describe the different ways in which capital can be transferred from suppliers of capital to those who are demanding capital

In a well-functioning economy, capital will flow efficiently from those who supply capital to those who demand it. This transfer of capital can take place in 3 different ways: 1)Direct transfers of money and securities occur when a business sells its stock or bonds directly to savers without going through any type of financial institution. The business delivers its securities to savers, who in turn, give the firm the money it needs 2) Transfers may also go through an investment bank that underwrites the issue. An underwriter serves as a middleman and facilitates the issuance of securities. The company sells its stocks or bonds to the investment bank, which then sells these same securities to savers. The businesses' securities and the savers' money merly "pass through" the investment bank. 3) Transfers can also be made through a financial intermediary. Here the intermediary obtains funds from savers in exchange for its own securities. The intermediary uses this money to buy and hold business' securities, while the savers hold the intermediary's securities. Intermediaries literally create new forms of capital. The existence of intermediaries greatly increases the efficiency of money and capital markets.

Which one of the following statements concerning net working capital is correct?

Net working capital may be a negative value

Which one of the following will increase the cash flow from assets, all else equal

decrease in the change in net working capital

The What-Not Shop owns the building in which it is located. The building initially costs $647000 and is currently appraised at $819000. The fixtures originally cost $148000 and are currently valued at $65000. The inventory has a book value of $319000 and a market value equals to 1.1 times the book value. The shop expects to collect 96 percent of the $21700 in accounts receivable. The shop has $26800 in cash and total debt of $414700. What is the market value of the shop's equity?

$867832 Equity MV = $819000 + 65000 + 1.1($319000) + .96($21700) + 26800 - 414700 Equity MV = 867832

You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?

Construction of a new restricted access highway located between the store and the surrounding residential areas

What does liquidity measure? Explain the trade-off a firm faces between high liquidity and low liquidity levels

Liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. It's desirable for firms to have high liquidity so that they have a large factor of safety in meeting short-term creditor demands. However, since liquidity also has an opportunity cost associated with it - namely that higher returns can generally be found by investing the cash into productive assets - low liquidity levels are also desirable to the firm. It's up to the firm's financial management staff to find a reasonable compromise between these opposing needs.

Which one of the following accounts is the most liquid?

accounts receivable

Which one of the following is a current asset?

accounts receivable

The book value of a firm is

based on historical cost

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the

cash flow from assets

The cash flow related to interest payments less any net new borrowing is called the

cash flow to creditors

Shareholders' equity

represents the residual value of a firm