Fin 3150 Chapter 2

Given the following, what is free cash flow? Cash flow from operating activities $200,000 Cash flow from investing activities $140,000 Cash flow from financing activities $56,000 Building purchases $50,000 Dividends paid $20,000 A. $130,000 B. $326,000 C. $396,000 D. $270,000

A. $130,000 Operating cash flows are = $200,000 less: building purchase = $50,000 less: dividends paid = $20,000 FCF = $130,000

A firm's purchase of plant and equipment would be considered a: A. use of cash for investment activities. B. source of cash for operating activities. C. use of cash for operating activities. D. use of cash for financing activities.

A. use of cash for investment activities.

Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company took the proceeds from these new shares as well as other operating improvements and earned $937,500 earnings after taxes in 2016. Earnings per share for the year 2016 were A. $3.13. B. $2.68. C. $2.14. D. None of the options.

B. $2.68. Earnings per share for the year 2016 were =937,500/(300,000+50,000) =2.68

Compute the cash flows from operations using the indirect method if Star Corporation had $250,000 in net income, $30,000 in depreciation expense, a decrease of $20,000 in accounts receivable and an increase in bonds payable of $50,000. A. $250,000 B. $300,000 C. $310,000 D. $370,000

B. $300,000 Cash flow from operations = Net income + Depreciation + Decrease in A/R = $250,000 + $30,000 + $20,000 = $300,000

Which of the following would represent a positive source of funds and, indirectly, an increase in cash balances? A. A reduction in notes payable B. A reduction in accounts receivable C. The repurchase of shares of the firm's stock D. A decrease in net income

B. A reduction in accounts receivable

The statement of cash flows does not include which of the following sections? A. Cash flows from operating activities B. Cash flows from sales activities C. Cash flows from financing activities D. Cash flows from investing activities

B. Cash flows from sales activities

How many of the following items decrease cash flow in the statement of cash flows? • Increase in accounts receivable • Increase in notes payable • Depreciation expense • Increase in investments • Decrease in accounts payable • Decrease in prepaid expenses • Dividend payment • Increase in accrued expenses A. Three of these items decrease cash flow B. Four of these items decrease cash flow C. Two of these items decrease cash flow D. Five of these items decrease cash flow

B. Four of these items decrease cash flow

How many of the following items are found on the income statement, rather than the balance sheet? •Sales •Notes payable (due in six months •Bonds payable (mature in 10 years •Common stock •Depreciation expense •Inventories •Capital in excess of par value •Net income (earnings after taxes) •Income tax payable A. Five of these items are found on the income statement. B. Three of these items are found on the income statement. C. Two of these items are found on the income statement. D. Four of these items are found on the income statement.

B. Three of these items are found on the income statement.

Preferred stock dividends __________ earnings available to common stockholders. A. There is not enough information to determine B. decrease C. increase D. do not effect

B. decrease

A firm with earnings per share of $3 and a price-earnings (P/E) ratio of 24 will have a stock market price of: A. $15.00. B. $6.67. C. $72.00. D. $3.00.

C. $72.00. 24 x 3= $72

Which of the following is an inflow of cash? A. The purchase of a new factory B. The retirement of the firm's bonds C. The sale of the firm's bonds D. Funds spent in normal business operations

C. The sale of the firm's bonds

Farah Snack Co. has earnings after taxes of $150,000. Interest expense for the year was $20,000; preferred dividends paid were $20,000; and common dividends paid were $30,000. Taxes were $22,500. The firm has 100,000 shares of common stock outstanding. Earnings per share on the common stock was: A. $0.75. B. $1.10. C. $0.80. D. $1.30.

D. $1.30. EPS = (Net income - Dividend on Preferred Stock) \Oustanding Common Stock EPS = (1,50,000 - 20,000) \div 1,00,000 EPS = (1,30,000 ) \ 1,00,000 EPS = 1.30

Consider the following information for Ball Corp. Selling and administrative expense $40,000 Depreciation expense $70,000 Sales $350,000 Interest expense $30,000 Cost of goods sold $110,000 Taxes $17,500 What is the operating profit for Ball Corp.? A. $71,450 B. $90,000 C. None of the options D. $130,000

D. $130,000 Operating Profit = Sales - Cost of Goods Sold - Selling and Administrative Expense - Depreciation Expense = 350,000 - 110,000 - 40,000 - 70,000 = $130,000.

Density Farms Inc. had sales of $750,000, cost of goods sold of $200,000, selling and administrative expense of $70,000, and operating profit of $150,000. What was the value of depreciation expense? A. $0 B. $230,000 C. $150,000 D. $330,000

D. $330,000 Sales $750,000 Less cost of goods sold $200,000 Less selling and admin exp $70,000 Less operating profit $150,000 Depreciation expense= $330,000

A statement of cash flows allows a financial analyst to determine: A. whether a cash dividend is affordable. B. whether long-term assets are being financed with long-term or short-term financing. C. how increases in assets have been financed. D. All of the options

D. All of the options

Price-earnings (P/E) ratio is influenced by all of the following BUT: A. earnings per share. B. quality of management. C. the business risk the firm takes on. D. All of the options are true.

D. All of the options are true.

Which of the following is an outflow of cash? A. The sale of the company's common stock B. Profitable operations C. The sale of equipment D. The payment of cash dividends

D. The payment of cash dividends

Asset accounts on the balance sheet are listed in order of: A. importance. B. profitability. C. dollar amount. D. liquidity.

D. liquidity.

Earnings per share is: A. operating profit divided by number of shares outstanding. B. net income divided by number of shares outstanding. C. net income divided by stockholders' equity. D. net income minus preferred dividends divided by number of shares outstanding.

D. net income minus preferred dividends divided by number of shares outstanding.

Which of the following would represent a use of funds and, indirectly, a reduction in cash balances? A. A decrease in marketable securities B. The sale of new bonds by the firm C. An increase in accounts payable D. An increase in inventories

D. An increase in inventories