Finance Chapter 2: Questions

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?

$76,320

Use the Corporate Tax tables found elsewhere in this quiz or your notes. Compute the Federal Corporate Taxes owed on 21165936 of taxable income.

7408077.6

Which one of the following accounts is the most liquid? A. Inventory B. Building C. Accounts receivable D. Equipment E. Land

Accounts receivable

The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable.

higher the probability that the firm will encounter financial distress.

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? A. $710 B. $780 C. $990 D. $2,430 E. $2,640

$780

The tax rates are as shown in the table. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000?

Additional tax = .34(100,000-97,800) + .39(97,800 + 21,000 - 100,000) Additional tax = $8,080

Cash flow to stockholders is defined as: A. the total amount of interest and dividends paid during the past year. B. the change in total equity over 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. dividend payments less net new equity raised.

Dividend payments less net new equity raised

Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?

Earnings before interest and taxes = $1,349,800 - $903,500 - $42,700 = $403,600 Tax = $403,600 x .34 = $137,224 Operating cash flow = $403,600 + $42,700 - $137,224 = $309,076 Operating cash flow = $309,076

The common set of standards and procedures by which audited financial statements are prepared is known as the: A. matching principle B. cash flow identity C. Generally Accepted Accounting Principles D. Financial Accounting Reporting Principles E. Standard Accounting Value Guidelines

Generally Accepted Accounting Principles

Which of the following are included in current liabilities? I. note payable to a supplier in eight months II. amount due from a customer next month III. account payable to a supplier that is due next week IV. loan payable to the bank in fourteen months A. I and III and only B. II and III only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

I and III only Note payable to a supplier in eight months Account payable to a supplier that is due next week

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time? A. income statement B. balance sheet C. statement of cash flows D. tax reconciliation statement E. market value report

Income statement

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

Marginal

Given the tax rates in the table, what is the average tax rate for a firm with taxable income of $311,360?

Tax = .15(50,000) + .25(25,000) + .34(25,000) + .39(211,360) = 104,680.40 Average tax rate = 104,680.40/311,360 Average tax rate = 33.62%

A positive cash flow to stockholders indicates which one of the following with certainty? A. The dividends paid exceeded the net new equity raised. B. The amount of the sale of common stock exceeded the amount of dividends paid. C. No dividends were distributed but new shares of stock were sold. D. Both the cash flow to assets and the cash flow to creditors must be negative. E. Both the cash flow to assets and the cash flow to creditors must be positive.

The dividends paid exceeded the net new equity raised.

Which one of the following statements related to taxes is correct? A. The marginal tax rate must be equal to or lower than the average tax rate for a firm. B. The tax for a firm is computed by multiplying the firm's current marginal tax rate times the taxable income. C. Additional income is taxed at a firm's average tax rate. D. Given the corporate tax structure in 2012, the highest marginal tax rate is equal to the highest average tax rate. E. The marginal tax rate for a firm can be either higher than or the same as the average tax rate.

The marginal tax rate for a firm can be either higher than or the same as the same as the average tax rate

At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?

Change NWC = End - Beg = 18,700 - (-3003) = $21,903

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends. During the year, the company sold $75,000 worth of common stock. What is the cash flow to stockholders?

NI = $121,600 Div = (NI) (.4) = $48,640 CFTS = Div - Net New Equity Raised $48,640 - $75,000 = $-26,360 CFTS = ($26,360)

The cash flow related to interest payments less any net new borrowing is called the: A. Operating cash flow B. Capital spending cash C. Net working capital D. Cash flow from assets E. Cash flow to creditors

Cash flow to creditors

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?

Cash flow to creditors = Interest paid - Net New Borrowing NNB = 68,219 - 72,918 = (4,699) Interest paid = 6,430 CFC = 6,430 - (-4,699) = $11,129

Net working capital is defined as: A. total liabilities minus shareholders' equity B. current liabilities minus shareholders' equity. C. fixed assets minus long-term liabilities. D. current assets minus current liabilities.

Current assets minus current liabilities

Dee Dee's Marina is obligated to pay its creditors $6,400 today. The firm's assets have a current market value of $5,900. What is the current market value of the shareholders' equity?

Since the market value of equity cannot be negative, the answer is zero.