FIN3403 Chapter 2 quiz

The ________ tax rate is equal to total taxes divided by total taxable income. A. Deductible. B. Marginal. C. Average. D. Total. E. Residual.

C. Average.

A firm's balance sheet showed beginning net fixed assets of $3.6 million, and ending net fixed assets of $3.4 million. The depreciation expense is $900,000. What was the net capital spending for the year? $700,000 $1,100,000 $400,000 $1,300,000 $500,000

900,000 - (3,600,000 - 3,400,000) = $700,000

For a tax-paying firm, an increase in ________ will cause the cash flow from assets to increase. A. Taxes. B. Production costs. C. Depreciation. D. Net capital spending. E. Change in net working capital.

C. Depreciation.

Which one of the following statements concerning net working capital is correct? A. Net working capital increases when inventory is purchased with cash. B. Net working capital excludes inventory. C. Total assets must increase if net working capital increases. D. Net working capital may be a negative value. E. Net working capital is the amount of cash a firm currently has available for spending.

D. Net working capital may be a negative value.

The percentage of the next dollar you earn that must be paid in taxes is referred to as the ________ tax rate. A. Mean. B. Residual. C. Total. D. Average. E. Marginal.

E. Marginal.

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? A. Real estate investment. B. Good reputation of the company. C. Equipment owned by the firm. D. Money due from a customer. E. An item held by the firm for future sale.

B. Good reputation of the company.

Shareholders' equity: A. Is referred to as a firm's financial leverage. B. Represents the residual value of a firm. C. Is equal to total assets plus total liabilities. D. Decreases whenever new shares of stock are issued. E. Includes patents, preferred stock, and common stock.

B. Represents the residual value of a firm.

Which one of the following statements related to an income statement is correct? A. Interest expense is included in operating cash flow. B. Interest expense increases the amount of tax due. C. Depreciation does not affect taxes since it is a non-cash expense. D. Net income is distributed to dividends and paid-in surplus. - Wrong E. Taxes reduce both net income and operating cash flow. - possibly

E. Taxes reduce both net income and operating cash flow. - possibly

The following information pertains to Galaxy Interiors: What is the amount of the noncash expenses for 2015? A. $740 B. $1,333 C. $2,351 D. $1,611 E. $1,282

$1,611 The noncash expense is the depreciation in the amount of $1,611.

Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 32 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings? $95,200 $103,460 $121,680 $81,700 $76,320

$76,320 Net income = (sales-costs-depreciation- interest)(tax) (546,000- 295,000-37,000-15,000)(1-.32)= 135,320 Addition to Retained Earnings: Net income - what the firm paid 135,320-59,000 = 76,320

Which one of the following must be true if a firm had a negative cash flow from assets? A. The firm acquired new fixed assets. B. The firm utilized outside funding. C. The firm had a net loss for the period. D. The firm borrowed money. E. Newly issued shares of stock were sold.

B. The firm utilized outside funding.

The following information pertains to Galaxy Interiors: What is the amount of dividends paid for 2015? A.800 B. $0 C. $574 D. $1,374 E. $1,948

A.800 Dividends paid = $1,374 - ($2,696 - 2,122) = $800

Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I. Interest expense. II. Taxes. III. Cost of goods sold. IV. Depreciation. A. I, II, and IV only. B. II and IV only. C. IV only. D. I and IV only. E. I and III only.

D. I and IV only.

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' equity? $18,700 $23,700 $35,500 $6,900 $15,300

$18,700 (the amount of retained earnings is not provided, so you must use -->Shareholders equity= total assets - total liabilities) = $5,900 + $21,200 - $8,400 =$18,700

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? A. $11,129 B. $1,731 C. $19,172 D. $13,861 E. -$1,001

A. $11,129 cash flow to creditors equals 6,430 + (72918-68219) = 11,129

As of 2015, which one of the following statements concerning corporate income taxes is correct? A. A firm's tax is computed on an incremental basis. B. When analyzing a new project, the average tax rate should be used. C. A firm's marginal tax rate will generally be lower than its average tax rate once the firm's income exceeds $50,000. D. The lowest marginal rate is 25 percent. E. The largest corporations have an average tax rate of 39 percent.

A. A firm's tax is computed on an incremental basis.

Cash flow to stockholders is defined as: A. Dividend payments less net new equity raised. B. The total amount of interest and dividends paid during the past year. C. Cash flow from assets plus the cash flow to creditors. D. Operating cash flow minus the cash flow to creditors. E. The change in total equity over the past year.

A. Dividend payments less net new equity raised.

Which one of the following is NOT included in cash flow from assets? A. Interest expense. B. Inventory. C. Sales. D. Accounts payable. E. Cash account

A. Interest expense.

Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest 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? A. 48.87 percent B. 32.83 percent C. 33.33 percent D. 43.39 percent E. 38.17 percent

B. 32.83 percent Earnings before taxes = $843,800 - 609,900 - 76,400 - 38,200 = $119,300 Net income = $18,000 + 62,138 = $80,138 Taxes = $119,300 - 80,138 = $39,162 Tax rate = $39,162 / $119,300 = .3283, or 32.83 percent Earnings before taxes = $843,800 - 609,900 - 76,400 - 38,200 = $119,300 Net income = $18,000 + 62,138 = $80,138 Taxes = $119,300 - 80,138 = $39,162 Tax rate = $39,162 / $119,300 = .3283, or 32.83 percent

Which one of the following statements is correct concerning a corporation with taxable income of $125,000? A. Net income minus dividends paid will equal the ending retained earnings for the year. B. An increase in depreciation will increase the operating cash flow. C. Net income divided by the number of shares outstanding will equal the dividends per share. D. Interest paid will be included in both net income and operating cash flow. E. An increase in the tax rate will increase both net income and operating cash flow.

B. An increase in depreciation will increase the operating cash flow.

The book value of a firm is: A. Adjusted to the market value whenever the market value exceeds the stated book value. B. Based on historical cost. C.More of a financial than an accounting valuation. D.Generally greater than the market value when fixed assets are included. E. Equivalent to the firm's market value provided that the firm has some fixed assets.

B. Based on historical cost.

The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000? A. $8,155 B. $8,190 C. $8,080 D. $8,170 E. $8,130

C. $8,080 (50,000x.15)+(25,000x.25)+(22,800x.34)=$21,502 (50,000x.15)+(25,000x.25)+(25,000x.34)+(18,800x.39)=$29,582 29,582 - 21, 502 = $8080.00

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $289,740? 0-50,000 = 15% 50,001 - 75,000 =25% 75,001 - 100,000 = 34% 100,001-335,000 = 39% A. 39.00 percent B. 35.87 percent C. 33.22 percent D. 26.68 percent E. 34.67 percent

C. 33.22 percent Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($189,740) = $96,248.60 Average tax rate = $96,248.60 / $289,740 = .3322, or 33.22 percent

Which one of the following statements related to the cash flow to creditors is correct? A. If the cash flow to creditors is negative, then the firm must have a negative cash flow from assets. B. A positive cash flow to creditors means that a firm has increased its long-term debt. C. A positive cash flow to creditors represents a net cash outflow from the firm. D. If the cash flow to creditors is zero, then a firm has no long-term debt. E. If the cash flow to creditors is positive, then the firm must have borrowed more money than it repaid.

C. A positive cash flow to creditors represents a net cash outflow from the firm.

Suppose you are given the following information for Bayside Bakery: sales = $30,000; costs = $15,000; addition to retained earnings = $4,221; dividends paid = $469; interest expense = $1,300; tax rate = 30 percent. What is the amount of the depreciation expense? A. $7,000 B. $9,500 C. $5,500 D. $8,180 E. $4,820

Depreciation = Sales - Costs - EBIT net income = dividends paid + addition to Retained earnings 469+ 4,221 = 4,690 EBT= net income/ taxes 4,690/(1-.30)= 6,700 EBIT = EBT + interest expense 6,700+ 1,300 = 8,000 Depreciation = 30,000 - 15,000 - 8,000 = 7,000

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date? A. Dividend statement. B. Statement of cash flows. C. Creditor's statement. D. Income statement. E. Balance sheet.

E. Balance sheet.

Which of the following is (are) included in the market value of a firm but is (are) excluded from the firm's book value? I. Value of management skills. II. Value of a copyright. III. Value of the firm's reputation. IV. Value of employee's experience. A. I only. B. II only. C. III and IV only. D. I, II, and III only. E. I, III, and IV only.

E. I, III, and IV only.

The higher the degree of financial leverage employed by a firm is, the: Lower is the balance in accounts payable. Less debt a firm has per dollar of total assets. Lower is the amount of debt incurred. Higher is the number of outstanding shares of stock. Higher is the probability that the firm will encounter financial distress.

Higher is the probability that the firm will encounter financial distress.

You have gathered this information on JJ Enterprises: What is net new borrowing for 2015? 2014 Sales 6318 COGS 3945 Interest 303 Depreciation 1204 Cash 672 A/R 601 Current Liabil 414 Inventory 1215 Long Term Debt 4780 Net-Fixed Assets 7700 Shareholders Equity 4994 Taxes 217 2015 Sales 7202 COGS 4460 Interest 277 Depreciation 1196 Cash 418 A/R 578 Current Liabil 463 Inventory 1598 Long Term Debt 4103 Net-Fixed Assets 7330 Shareholders Equity 5358 Taxes 317 A. -$677 B. $677 c. -$400 d. $400 e. $1,077

Net borrowing = $4,103 - 4,780 = -$677

Which one of the following is classified as a tangible fixed asset? Inventory. Accounts receivable. Cash. Production equipment. Patent.

Production equipment.

Use the below information to answer the following question. Cost of Goods Sold $6409 Interest 315 Dividends 420 Depreciation 811 Change in Retained Earnings 296 Tax Rate 34% What is the taxable income given the above information?

Taxable income = (Change in Retained Earnings+Dividends)/(1-tax rate) Taxable income = (296+420)/(1-34%) Taxable income = $ 1084.85

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? A. $148,410 B. $81,417 C. $79,924 D. $68,320 E. $99,790

operating cash flow E. $99,790 Sales 911,400 Costs -787,300 Depreciation - 52,600 --------- EBIT 71,500 Interest - 0.00 --------- EBT 71,500 Taxes 34% -24,310 --------- Net Income 47,190 EBIT 71,500 Add Back Dep +52,600 Less taxes -24,310 --------- Oprt. Cash Flow 99,790