GBUS602 Financial Decision Making Test 1
When evaluating financial planning steps, we must consider all of the following
- the planning horizon for the next 2 to 5 years - how all small projects are added up for one big project - identifying the total need investment for the plan
Which one of the following is a use of cash?
-Increase in Inventory -Decrease in Accounts Payable - Dividends Paid
After-Tax Proceeds
1. find salvage value (cost of machinery * what the equipment will be worth %) 2. salvage value * (1-tax rate)
Ways to use cash
1. increase an asset account 2. reduce a liability account
Ways to generate cash
1. reducing an asset 2. increasing a liability
Change in Cash Flow
1. year 1 & 2 total in sales * % change 2. subtract the two
An income statement prepared using GAAP will show revenue when it is
Accrued
Shareholders' Equity
Assets - Liabilities
The Balance Sheet Identity is:
Assets = Liabilities + Owners Equity
Which one of the following is the financial statement that shows a financial snapshot, taken at a point in time, of all the assets the company owns and all the claims against those assets?
Balance Sheet
Book Value of Equity
Book Value of Assets - Book Value of Liabilities
The sources and uses of cash over a stated period of time are reflected in the
Cash Flow Statement
The size of a company's tax bill is determined by the tax...
Code
Is one that has a life of less than one year, meaning they must be paid within the year
Current Liability
Total Assets Formula
Current assets 2022 + Net fixed assets 2022
Total Liabilities and Equity Formula
Current liabilities 2022 + Long-term debt 2022 + Equity 2022
Equity Formula
Equity 2021 + Net Income 2022 (1-payout ratio)
T or F: For the Sales Forecast, almost all financial plans require an internally supplied sales forecast.
False
T or F: Since depreciation is a noncash deduction, it does not have cash flow consequences
False
Growth can summarize various aspects of a firm's __________ and ___________ policies.
Financial, Investment
The financial statement that summarizes a firm's revenue and expenses over a period of time
Income Statement
Which loan type requires calls for the borrower to pay interest each period and to repay the entire principal at some point in the future?
Interest-only
An asset's class established its ____________ for tax purposes.
Life
Net Fixed Assets Formula
Net fixed assets 2021 + Capital expenditures 2022 - Depreciation 2022
Dividend
Net income * (1-retention ratio)
A company purchases a new $10 million building financed half with cash and half with a bank loan. How would this transaction affect the company's balance sheet?
Net plant and equipment rises $10 million; cash falls $5 million; bank debt rises $5 million.
The Statement of Cash Flows has all of the following categories
Operating, Financing, Investment
Which loan type requires the borrower to repay a single lump sum payment at some time in the future with interest?
Pure Discount
The first thing reported on an income statement would usually be
Revenues
When reviewing a graph of data from sensitivity analysis, the ____________ the line, the ____________ the sensitivity of the estimated Net Present Value.
Steeper, Greater
Amount of tax due
Step 1. Find book value (equipment cost - accumulated depreciation) Step 2. Find capital gain (sale price or salvage value - book value) Step 3. Fins amount of tax due (capital gain * % in the tax bracket)
External Funding Required Formula
Total assets - Total liabilities and equity
T or F: If a substantial percentage of the scenarios look bad, the degree of forecasting risk is high and further investigation is in order.
True
T or F: The Income Statement measures performance over some period of time.
True
T or F: To generate a coherent plan, goals and objectives will have to be modified, and priorities will have to be established.
True
Which of the following is a reason why a company's market value of equity can differ from its book value of equity?
Which of the following is a reason why a company's market value of equity can differ from its book value of equity?
Ending Cash
beginning cash + net cash flow
Cash flow from assets equals:
cash flow to creditors + cash flow to stockholders
The main focus of sensitivity analysis is to:
determine the one variable that has the highest level of risk.
Operating Cash Flow
earnings before interest and taxes + depreciation - taxes
Beginning Cash
ending cash - net cash increase
It is recommended that at a minimum, we might want to investigate _________ scenarios in all, including the base case.
five
To get the worst case scenario, we assign the least favorable value to each item. This means to assign low values for items like units sold and price per unit and:
high values for cost
Cash Flow to Creditors
interest expenses paid - net new borrowings
Market Value of Equity
market value of net fixed assets + amount of current accounts liquidated - long-term debt
Net Increase in Cash
net cash (operating) - net cash (investing) + net cash (financing)
Annuity
present value= annuity(1-(1+rate)^-years)/rate)
The market value of an asset depends on
riskiness and cash flows
Marginal Tax Rate
the amount of tax payable on the next dollar earned
Capital Intensity Ratio
total assets/sales
Average Tax Rate
total taxes paid divided by total income
