FINC-3330-02 Ch. 2

Andre's Dog House had current assets of $67,200 and current liabilities of $71,100 last year. This year, the current assets are $82,600 and the current liabilities are $85,100. The depreciation expense for the past year is $9,600 and the interest paid is $8,700. What is the amount of the change in net working capital?

$1,400 Change in net working capital = ($82,600 -85,100) - ($67,200 -71,100) = $1,400

Ivan's, Inc., paid $488 in dividends and $589 in interest this past year. Common stock increased by $199 and retained earnings decreased by $125. What is the net income for the year?

$363 Net income = Dividends paid + Change in retained earningsNet income = $488 + (- $125) = $363 In this case, the change in retained earnings was a negative value.

Global Exporters has total assets of $84,300, net working capital of $22,900, owner's equity of $38,600, and long-term debt of $23,900. What is the value of the current assets?

$44,700

A firm has common stock of $81, paid-in surplus of $170, total liabilities of $365, current assets of $300, and net fixed assets of $510. What is the amount of the shareholders' equity?

$445 Shareholders' equity = Current assets + Net fixed assets - Total liabilities.Shareholders' equity = $300 + 510 - 365 = $445

The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net income for this firm?

$76,428 Net income = ($398,600 -254,800 -26,400 -1,600) (1 -.34) = $76,428

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,440,000, and the December 31, 2016, balance sheet showed long-term debt of $1,660,000. The 2016 income statement showed an interest expense of $98,000. What was the firm's cash flow to creditors during 2016?

Cash flow to creditors $ -122,000 The cash flow to creditors is the interest paid, minus any net new borrowing, so: Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeg) Cash flow to creditors = $98,000 - ($1,660,000 - 1,440,000) Cash flow to creditors = -$122,000

Rotweiler Obedience School's December 31, 2015, balance sheet showed net fixed assets of $1,745,000, and the December 31, 2016, balance sheet showed net fixed assets of $2,080,000. The company's 2016 income statement showed a depreciation expense of $325,000. What was the company's net capital spending for 2016?

Net capital spending $ 660,000 Net capital spending is the increase in net fixed assets, plus depreciation. Using this relationship, we find: Net capital spending = NFAend - NFAbeg + Depreciation Net capital spending = $2,080,000 - 1,745,000 + 325,000 Net capital spending = $660,000

Hammett, Inc., has sales of $19,570, costs of $9,460, depreciation expense of $2,130, and interest expense of $1,620. Assume the tax rate is 35 percent. What is the operating cash flow? (Do not include the dollar sign ($).)

Operating cash flow $ 7,884 To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get: Now we can calculate the OCF, which is: OCF = EBIT + Depreciation - Taxes OCF = $7,980 + 2,130 - 2,226 OCF = $7,884

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

Positive cash flow from assets

Which one of the following statements concerning market and book values is correct?

The market value tends to provide a better guide to the actual worth of an asset than does the book value.

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

balance sheet.

Highly liquid assets:

can be sold quickly at close to full value.

Net working capital is defined as:

current assets minus current liabilities.

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation.

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease.

Financial leverage:

increases the potential return to the shareholders.

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital.

The market value:

of an asset tends to provide a better guide to the actual worth of that asset than does the book value.

Cash flow from assets is defined as:

operating cash flow minus the change in net working capital minus net capital spending.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders.