chapter 2
Net income = ($687,000 - $492,000 - $26,000 - $42,000) (1 - .35) = $82,550
Andre's Bakery has sales of $687,000 with costs of $492,000. Interest expense is $26,000and depreciation is $42,000. The tax rate is 35 percent. What is the net income?
The firm utilized outside funding
40. Which one of the following must be true if a firm had a negative cash flow from assets?
inventory and cash
Which of the following are current assets?
income statement
Which one of the following is the financial statement that summarizes a firm's revenue andexpenses over a period of time
office salaries
Which one of these is most apt to be a fixed cost
operating cash flow
Which term relates to the cash flow which results from a firm's ongoing, normal businessactivities
$100 of inventory that is sold today for $100 cash
Which one of the following represents the most liquid asset?
Net working capital increases when inventory is sold for cash at a profit.
Which one of the following statements concerning net working capital is correct?
An increase in depreciation will increase the operating cash flow
Which one of the following statements is correct concerning a corporation with taxableincome of $125,000?
Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($211,360) = $104,680.40Average tax rate = $104,680.40/$311,360 = 33.62 percent
given the tax rates as shown, what is the average tax rate for a firm with taxable incomeof $311,360?
Liquid assets are valuable to a firm
Which one of the following statements related to liquidity is correct?
The marginal tax rate for a firm can be either higher or lower than the average tax rate
Which one of the following statements related to taxes is correct?
represents the residual value of a firm.
Shareholders' equity:
Cash flow to stockholders = .40($121,600) - $75,000 = -$26,360
The Daily News had net income of $121,600 of which 40 percent was distributed to theshareholders as dividends. During the year, the company sold $75,000 worth of commonstock. What is the cash flow to stockholders?
Shareholders' equity = $5,900 + $21,200 - $8,400 = $18,700(Note: The amount of retained earnings is not provided, so you must use total assets minustotal liabilities to derive the correct answer.
A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400,current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders'
Current assets = $6,230 - $3,910 = $2,320Current liabilities = $2,320 - $640 = $1,680Total liabilities = $1,680 + $4,180 = $5,860
A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230,and fixed assets are $3,910. What is the amount of the total liabilities?
The dividends paid exceeded the net new equity raised
A positive cash flow to stockholders indicates which one of the following with certainty?
Cash flow to creditors = $4,767 - ($48,919 - $42,511) = -$1,641
Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of$48,919. The beginning and ending total debt balances were $84,652 and $78,613,respectively. The interest paid was $4,767. What is the amount of the cash flow to creditors?
II. decrease net incomeIII. increase the cash flow from assets
An increase in the depreciation expense will do which of the following?
A firm's tax is computed on an incremental basis.
As of 2008, which one of the following statements concerning corporate income taxes iscorrect?
Change in net working capital = ($122,418 - $103,718) - ($121,306 - $124,509) = $21,903
At the beginning of the year, a firm had current assets of $121,306 and current liabilitiesof $124,509. At the end of the year, the current assets were $122,418 and the currentliabilities were $103,718. What is the change in net working capital?
free cash flow
Cash flow from assets is also known as the firm's
dividend payments less net new equity raised
Cash flow to stockholders is defined as
Earnings before interest and taxes = $1,349,800 - $903,500 - $42,700 = $403,600 Tax = $403,600 ´ .34 = $137,224Operating cash flow = $403,600 + $42,700 - $137,224 = $309,076
Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700and the tax rate is 34 percent. The firm does not have any interest expense. What is theoperating cash flow?
Market value of firm = $819,000 + $65,000 + 1.2($319,000) + .98($21,700) + $26,800 -$414,700 = $900,166
Jake owns The Corner Market which he is trying to sell so that he can retire and travel.The Corner Market owns the building in which it is located. This building was built at a costof $647,000 and is currently appraised at $819,000. The counters and fixtures originally cost$148,000 and are currently valued at $65,000. The inventory is valued on the balance sheet at$319,000 and has a retail market value equal to 1.2 times its cost. Jake expects the store tocollect 98 percent of the $21,700 in accounts receivable. The firm has $26,800 in cash and hastotal debt of $414,700. What is the market value of this firm?
Net income = $1,300 + (-$310) = $990
Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Commonstock increased by $1,200 and retained earnings decreased by $310. What is the net incomefor the year?
Net income = $75 + $418 = $493Taxable income = $493/(1 - .35) = $758.46Earnings before interest and taxes = $758.46 + $511 = $1,269.46
Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. Theaddition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent.Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes?
Net working capital = $4,900 - $3,200 - $1,400 = $300
Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, andshort-term debt of $1,400. What is the amount of net working capital?
Cash flow to creditors = $6,430 - ($68,219 - $72,918) = $11,129
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?
Current liabilities = .60 ´ $126,000 = $75,600Total assets = $141,800 + $126,000 = $267,800Current assets = $267,800 - $161,900 = $105,900Net working capital = $105,900 - $75,600 = $30,300
Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000of which 60 percent is payable within the next year. The firm net fixed assets of $161,900.What is the amount of the net working capital?
cash flow to creditors
The cash flow related to interest payments less any net new borrowing is called the:
Generally Accepted Accounting Principles
The common set of standards and procedures by which audited financial statements areprepared is known as the
higher the probability that the firm will encounter financial distress
The higher the degree of financial leverage employed by a firm, the:
marginal
The percentage of the next dollar you earn that must be paid in taxes is referred to as the_____ tax rate.
Additional tax = .34($100,000 - $97,800) + .39($97,800 + $21,000 - $100,000) = $8,080
The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. Howmuch additional tax will the firm owe if taxable income increases by $21,000
I. interest expense depreciation
Which of the following are expenses for accounting purposes but are not operating cashflows for financial purposes?
Earnings before taxes = $843,800 - $609,900 - $76,400 - $38,200 = $119,300Net income = $18,000 + $62,138 = $80,138Taxes = $119,300 - $80,138 = $39,162Tax rate = $39,162/$119,300 = 32.83 percent
Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 ininterest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year.The depreciation was $76,400. What is the average tax rate?
construction of a new restricted access highway located between the store and thesurrounding residential areas
You recently purchased a grocery store. At the time of the purchase, the store's marketvalue equaled its book value. The purchase included the building, the fixtures, and theinventory. Which one of the following is most apt to cause the market value of this store to belower than the book value?
Current assets = $520 + $190 + $70 = $780
a firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 inaccounts payable, and $70 in cash. What is the amount of the current assets?
Taxes reduce both net income and operating cash flow
Which one of the following statements related to an income statement is correct?
balance sheet
Which one of the following is the financial statement that shows the accounting value of afirm's equity as of a particular date
reduces both taxes and net income.
Depreciation
depreciation
For a tax-paying firm, an increase in _____ will cause the cash flow from assets toincrease
Book value of shareholders' equity = $64,500 + $57,200 - $111,300 = $10,400
Four years ago, Velvet Purses purchased a mailing machine at a cost of $176,000. Thisequipment is currently valued at $64,500 on today's balance sheet but could actually be soldfor $58,900. This is the only fixed asset the firm owns. Net working capital is $57,200 andlong-term debt is $111,300. What is the book value of shareholders' equity?
is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense
Net capital spending:
current assets minus current liabilities.
Net working capital is defined as:
Net capital spending = $209,411 - $218,470 + $42,822 = $33,763
Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assetsof $209,411. During the year, assets with a combined book value of $6,943 were sold.Depreciation for the year was $42,822. What is the amount of net capital spending?
expenses which do not directly affect cash flows
Noncash items refer to
Cash flow from assets = $48,450 - (-$1,330) - $24,000 = $25,780Cash flow to creditors =$2,480 - (-$2,620) = $5,100Cash flow to stockholders = $25,780 - $5,100 = $20,680
The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 andinterest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent$24,000 on fixed assets and decreased net working capital by $1,330. What is the amount ofthe cash flow to stockholders?
average
The _____ tax rate is equal to total taxes divided by total taxable income.
based on historical cost
The book value of a firm is
cash flow from assets
The cash flow of a firm which is available for distribution to the firm's creditors andstockholders is called the
note payable to a supplier in eight months III. account payable to a supplier that is due next week
Which of the following are included in current liabilities
I. value of management skills III. value of the firm's reputation IV. value of employee's experience
Which of the following are included in the market value of a firm but are excluded fromthe firm's book value
accounts receivable
Which one of the following accounts is the most liquid?
depreciation
Which one of the following costs is most apt to be a fixed cost?
interest expense
Which one of the following is NOT included in cash flow from assets?
trademark
Which one of the following is classified as an intangible fixed asset?
good reputation of the company
Which one of the following is included in a firm's market value but yet is excluded fromthe firm's accounting value
Costs of goods sold are recorded based on the matching principle
Which one of the following is true according to Generally Accepted AccountingPrinciples?
A decrease in the cash balance also decreases net working capital.
Which one of the following statements concerning net working capital is correct?
The labor costs for producing a product are expensed when the product is sold
Which one of the following statements related to an income statement is correct? Assumeaccrual accounting is used.
A positive cash flow to creditors represents a net cash outflow from the firm.
Which one of the following statements related to the cash flow to creditors is correct?
decrease in net capital spending
Which one of the following will increase the cash flow from assets, all else equal
selling inventory at a profit
Which one of the following will increase the value of a firm's net working capital?