ch 1 business finance
AV Sales has net revenue of $513,000 and costs of $406,800. The depreciation expense is $43,800,interest paid is $11,200, and dividends for the year are$4,500. The tax rate is 33 percent. What is the addition to retained earnings? $38,804 $34,304 $28,120 $29,804 $30,450
d
Capital budgeting includes the evaluation of which of the following? Size and timing of future cash flows only Timing and risk of future cash flows only Size of future cash flows only Size, timing, and risk of future cash flows Risk and size of future cash flows only
d
Cash flow to stockholders is defined as: cash flow from assets plus cash flow to creditors. operating cash flow minus cash flow to creditors. dividends paid plus the change in retained earnings. dividends paid minus net new equity raised. net income minus the addition to retained earnings.
d
Production equipment is classified as: a net working capital item. a current liability. a current asset. a tangible fixed asset. an intangible fixed asset.
d
Given a profitable firm, depreciation: increases net income. increases net fixed assets. decreases net working capital. lowers taxes. has no effect on net income.
d
Bleu Berri Farms had equity of $58,900 at the beginning of the year. During the year, the company earned net income of $8,200 and paid $2,500 in dividends. Also during the year, the company repurchased $3,500 of stock from one of its shareholders. What is the value of the owners' equity at year end? $61,100 $67,600 $64,900 $64,400 $68,100
a
Cash flow to creditors is defined as: interest paid minus net new borrowing. interest paid plus net new borrowing. operating cash flow minus net capital spending minus the change in net working capital. dividends paid plus net new borrowing. cash flow from assets plus net new equity.
a
Paid-in surplus is classified as: owners' equity. net working capital. a current asset. a cash expense. long-term debt.
a
Net working capital includes: a land purchase. an invoice from a supplier. non-cash expenses. fixed asset depreciation. the balance due on a 15-year mortgage.
b
Pier Imports has cash of $41,100 and accounts receivable of $54,200, all of which is expected to be collected. The inventory cost $82,300 and can be sold today for $116,500. The fixed assets were purchased at a total cost of $234,500 of which $118,900 has been depreciated. The fixed assets can be sold today for $138,000. What is the total book value of the firm's assets? $327,800 $293,200 $346,800 $412,100 $415,600
b
The Green Carpet has current liabilities of $72,100 and accounts receivable of $107,800. The firm has total assets of $443,500 and net fixed assets of $323,700. The owners' equity has a book value of $191,400. What is the amount of the net working capital? $50,100 $47,700 $6,500 -$18,800 -$29,700
b
he potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? Formative Agency Territorial Organizational Structural
b
Blythe Industries reports the following account balances: inventory of $417,600, equipment of $2,028,300, accounts payable of $224,700, cash of $51,900, and accounts receivable of $313,900. What is the amount of the current assets? $46,700 $56,000 $783,400 $975,000 $699,700
c
A negative cash flow to stockholders indicates a firm: had a net loss for the year. had a positive cash flow to creditors. paid dividends that exceeded the amount of the net new equity. repurchased more shares than it sold. received more from selling stock than it paid out to shareholders.
e
Leslie Printing has net income of $26,310 for the year. At the beginning of the year, the firm had common stock of $55,000, paid-in surplus of $11,200, and retained earnings of $48,420. At the end of the year, the firm had total equity of $142,430. The firm paid dividends of $32,500. What is the amount of the net new equity raised during the year? $34,000 $42,500 $25,000 $21,500 $0
a
Market values: reflect expected selling prices given the current economic situation. are affected by the accounting methods selected. are equal to the initial cost minus the depreciation to date. either remain constant or increase over time. are equal to the greater of the initial cost or the current expected sales value.
a
Net capital spending is equal to: ending net fixed assets minus beginning net fixed assets plus depreciation. beginning net fixed assets minus ending net fixed assets plus depreciation. ending net fixed assets minus beginning net fixed assets minus depreciation. ending total assets minus beginning total assets plus depreciation. ending total assets minus beginning total assets minus depreciation.
a
Probably the least effective means of aligning management goals with shareholder interests is: automatically increasing management salaries on an annual basis. basing all management bonuses on performance goals. the threat of a takeover of the firm. the potential for a proxy fight by an unhappy segment of shareholders. holding management salaries steady while increasing stock option grants.
a
The primary goal of financial management is to maximize: the market value of existing stock. current profits. revenue growth. current dividends. market share.
a
Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts as referred to as: working capital management. capital structure decisions. fixed account structure. operating management. capital budgeting decisions.
a
Which one of the following is a capital structure decision? Establishing the preferred debt-equity level Setting the terms of sale for credit sales Selecting new equipment to purchase Determining when suppliers should be paid Determining the optimal inventory level
a
Which one of the following situations is most apt to create an agency conflict? Laying off employees during a slack period Basing management bonuses on the length of employment Giving all employees a bonus if a certain level of efficiency is maintained Compensating a manager based on his or her division's net income Hiring an independent consultant to study the operating efficiency of the firm
b
he market value: of accounts receivable is generally higher than the book value of those receivables. of an asset tends to provide a better guide to the actual worth of that asset than does the book value. of fixed assets will always exceed the book value of those assets. of an asset is reflected in the balance sheet. of an asset is lowered each year by the amount of depreciation expensed for that asset.
b
Cash flow from assets is defined as: the cash flow to shareholders minus the cash flow to creditors. operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. operating cash flow minus the change in net working capital minus net capital spending. operating cash flow plus net capital spending plus the change in net working capital. cash flow to shareholders minus net capital spending plus the change in net working capital.
c
Cash flow to creditors increases when: interest rates on debt decline. accounts payables decrease. long-term debt is repaid. current liabilities are repaid. new long-term loans are acquired.
c
The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: average tax rate. variable tax rate. marginal tax rate. fixed tax rate. ordinary tax rate.
c
Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's: working capital. risk structure. capital structure. capital budget. asset allocation.
c
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow? Increase in depreciation Increase in accounts receivable Increase in accounts payable Decrease in cost of goods sold Increase in sales
c
Lew's Auto Repair has cash of $18,600, accounts receivable of $34,500, accounts payable of $28,900, inventory of $97,800, long-term debt of $142,000, and net fixed assets of $363,800. The firm estimates that if it wanted to cease operations today it could sell the inventory for $85,000 and the fixed assets for $349,000. The firm could collect 100 percent of its receivables as they are secured. What is the market value of the firm's assets? $332,800 $458,200 $374,200 $495,500 $487,100
e
National Importers paid $38,600 in dividends and $24,615 in interest over the past year while net working capital increased from $15,506 to $17,411. The company purchased $38,700 in net new fixed assets and had depreciation expenses of $14,784. During the year, the firm issued $20,000 in net new equity and paid off $23,800 in long-term debt. What is the amount of the cash flow from assets? $21,811 $41,194 $36,189 $26,410 $67,015
e
Net working capital decreases when: a new 3-year loan is obtained with the proceeds used to purchase inventory. a credit customer pays his or her bill in full. depreciation increases. a long-term debt is used to finance a fixed asset purchase. a dividend is paid to current shareholders.
e
Net working capital is defined as: the depreciated book value of a firm's fixed assets. the value of a firm's current assets. available cash minus current liabilities. total assets minus total liabilities. current assets minus current liabilities.
e
The financial statements of Blue Fin Marina reflect depreciation expenses of $41,600 and interest expenses of $27,900 for the year. The current assets increased by $31,800 and the net fixed assets increased by $28,600. What is the amount of the net capital spending for the year? $13,000 $21,600 $28,600 $60,400 $70,200
e
The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of: a working capital decision. a compensation issue. a capital structure issue. a corporate takeover. an agency conflict.
e
Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? Positive operating cash flow Negative cash flow to creditors Positive cash flow to stockholders Negative net capital spending Positive cash flow from assets
e
Which one of the following is a working capital decision? What debt-equity ratio is best suited to the firm? Should the firm borrow money for five or for ten years? How should the firm raise additional capital to fund its expansion? What is the cost of debt financing? How much cash should the firm keep in reserve?e
e
ressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued? Positive operating cash flow Negative cash flow from assets Positive net income Negative operating cash flow Positive cash flow to stockholders
e
If a firm has a negative cash flow from assets every year for several years, the firm: may be continually increasing in size. must also have a negative cash flow from operations each year. is operating at a high level of efficiency. is repaying debt every year. has annual net losses.
a
Which one of the following terms is defined as the total tax paid divided by the total taxable income? Average tax rate Variable tax rate Marginal tax rate Absolute tax rate Contingent tax rate
a
Working capital management includes which one of the following? Determining which customers will be granted credit Deciding whether to purchase a new machine or fix a currently owned machine Deciding which new projects to accept Determining how many new shares of stock should be issued Establishing the target debt-equity ratio
a
Which one of the following is most apt to align management's priorities with shareholders' interests? Holding corporate and shareholder meetings at high-end resort-type locations preferred by managers Increasing the number of paid holidays that long-term employees are entitled to receive Compensating managers with shares of stock that must be held for a minimum of three years Allowing employees to retire early with full retirement benefits Paying a special management bonus on every fifth year of employment
c
Which one of the following statements concerning the balance sheet is correct? Total assets equal total liabilities minus total equity. Net working capital is equal total assets minus total liabilities. Assets are listed in descending order of liquidity. Current assets are equal to total assets minus net working capital. Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt.
c
Cornerstone Markets has beginning long-term debt of $64,500, which is the principal balance of a loan payable to Centre Bank. During the year, the company paid a total of $16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000. What is the value of the ending long-term debt? $45,100 $53,300 $58,200 $63,300 $85,900
d
MNM & Co incurred depreciation expenses of $36,810 last year. The sales were $903,480 and the addition to retained earnings was $11,530. The firm paid interest of $7,711 and dividends of $7,500. The tax rate was 33 percent. What was the amount of the costs incurred by the company? $822,845 $689,407 $742,306 $830,556 $780,400
d
Net income increases when: fixed costs increase. depreciation increases. the average tax rate increases. revenue increases. dividends cease.
d
Outdoor Sports paid $12,500 in dividends and $9,310 in interest over the past year. Sales totaled $361,820 with costs of $267,940. The depreciation expense was $16,500 and the tax rate was35 percent. What was the amount of the operating cash flow? $64,232 $65,306 $57,556 $70,056 $70,568
d
The Sarbanes-Oxley Act: requires all corporations to fully disclose its financial dealings to the general public. places total responsibility for the financial statements of a firm on the auditor who certifies the statements. require the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results. requires that the board of directors be solely responsible for the firm's financial dealings. places the responsibility for a firm's financial statements solely on the chief financial officer.
d
W. S. Movers had $138,600 in net fixed assets at the beginning of the year. During the year, the company purchased $27,400 in new equipment. It also sold, at a price of $5,300, some old equipment that had a book value of $2,100. The depreciation expense for the year was $6,700. What is the net fixed asset balance at the end of the year? $146,900 $159,300 $163,900 $157,200 $148,400
d
Which one of these is correct? rev: 09_27_2017_QC_CS-102802 Depreciation has no effect on taxes. Interest paid is a noncash item. Taxable income must be a positive value. Net income is distributed either to dividends or retained earnings. Taxable income equals net income divided by (1 + Average tax rate).
d
enna has been promoted and is now in charge of all external financing. In other words, she is in charge of: risk management. working capital management. capital budgeting. capital structure management. asset allocation.
d
the goal of financial management is to increase the: book value of equity. future value of the firm's total equity. number of shares outstanding. current market value per share. dividends paid per share.
d
An agency issue is most apt to develop when: the firm's owner is also its key manager. a firm downsizes. a firm encounters a period of stagnant growth. a firm is structured as a general partnership. the control of a firm is separated from the firm's ownership.
e