Managerial Finance Quiz Ch. 1 & 2

Wallace Driving School's 2020 balance sheet showed net fixed assets of $5.3 million, and the 2021 balance sheet showed net fixed assets of $5.9 million. The company's 2021 income statement showed a depreciation expense of $410,000. What was net capital spending for 2021?

$1,010,000

Nataro, Incorporated, has sales of $676,000, costs of $338,000, depreciation expense of $82,000, interest expense of $51,000, a tax rate of 24 percent, and paid out $42,000 in cash dividends. What is the addition to retained earnings?

$113,800 Addition to retained earnings = Net income - Dividends

Nataro, Incorporated, has sales of $674,000, costs of $336,000, depreciation expense of $80,000, interest expense of $50,000, and a tax rate of 22 percent. What is the net income for this firm?

$162240 Net income = sales - costs - depreciation - interest - taxes

Graff, Incorporated, has sales of $54,500, costs of $24,800, depreciation expense of $2,700, and interest expense of $2,450. If the tax rate is 22 percent, what is the operating cash flow, or OCF?

$24,299

The 2020 balance sheet of Osaka's Tennis Shop, Incorporated, showed $520,000 in the common stock account and $5.5 million in the additional paid-in surplus account. The 2021 balance sheet showed $560,000 and $5.7 million in the same two accounts, respectively. If the company paid out $315,000 in cash dividends during 2021, what was the cash flow to stockholders for the year?

$75000 Cash flow to stockholders = Dividends paid - Net new equity Cash flow to stockholders = Dividends paid - [(Common stock ending + ending Additional paid-in surplus) - (Common stock beginning + APIS beginning)]

Change in NWC =

(CAend - CLend) - (CAbeginning - CLbeginning)

The 2020 balance sheet of Dugan, Incorporated, showed current assets of $3,150 and current liabilities of $1,630. The 2021 balance sheet showed current assets of $3,000 and current liabilities of $1,605. What was the company's 2021 change in net working capital, or NWC?

-$125 Change in NWC = NWCend - NWCbeginning Change in NWC = (CAend - CLend) - (CAbeginning - CLbeginning)

The 2020 balance sheet of Osaka's Tennis Shop, Incorporated, showed long-term debt of $6 million, and the 2021 balance sheet showed long-term debt of $6.4 million. The 2021 income statement showed an interest expense of $160,000. What was the firm's cash flow to creditors during 2021?

-$240000 Cash flow to creditors = Interest paid - Net new borrowing Cash flow to creditors = Interest paid - (LTDend - LTDbeginning)

A _________ __________ is one that has a life of less than one year, meaning they must be paid within the year. A. current liability B. owners equity C. fixed asset D. total asset E. liquid equity

A

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes. A. marginal B. residual C. total D. average E. standard

A

Which one of the following determines the standards and procedures with which audited financial statements are prepared? A. Generally Accepted Accounting Principles B. Matching principle C. Cash flow identity D. Financial Accounting Reporting Principles E. Standard Accounting Value Guidelines

A

Which one of the following grants an individual the right to vote on behalf of a shareholder? A. Proxy B. Bylaws C. Indenture agreement D. Stock option

A

Bing, Incorporated, has current assets of $6,000, net fixed assets of $25,100, current liabilities of $4,950, and long-term debt of $12,000. A.What is the value of the shareholders' equity account for this firm? B.How much is net working capital?

A. $14150 B. $1050

Which one of the following best states the primary goal of financial management? A. Maximize current dividends per share B. Maximize the current value per share C. Avoid financial distress D. Maximize profit

B

Which one of the following is most likely to be a fixed cost? A. Raw materials B. Rent C. Management bonuses D. Manufacturing wages E. Shipping and freight

B

Which one of the following would cause a cash outflow from a corporation? A. Issuing new securities B. Paying dividends C. Taking out a loan from a bank D. Receiving a tax refund from the government

B

An income statement prepared using GAAP will show revenue when it is: A. Received. B. Collected. C. Accrued. D. Matched. E. Produced.

C

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction: A. took place in the primary market. B. occurred in a dealer market. C. occurred in the secondary market. D. involved a proxy.

C

The book value of a firm is: A. equivalent to the firm's market value minus its liabilities. a financial, rather than an accounting, valuation. B. generally greater than the market value when fixed assets are included. C. based on historical transactions. D. adjusted to the market value whenever the market value E. exceeds the stated book value.

C

Which one of the following is an unintended result of the Sarbanes-Oxley Act? A. More detailed and accurate financial reporting B. Increased management awareness of internal controls C. Corporations delisting from major exchanges D. Increased responsibility for corporate officers E. Identification of internal control weaknesses

C

Which one of the following is classified as a current asset? A. Accounts payable B. Patent C. Inventory D. Notes payable E. Office furniture

C

Cash flow from assets =

Cash flow to creditors + Cash flow to stockholders OR OCF - Change in NWC - Net capital spending

Cash flow from assets is also known as the firm's: A. capital structure. B equity structure. C. hidden cash flow. D. free cash flow.

D

Public offerings of debt and equity must be registered with the: A. New York Board of Governors. B. Federal Reserve. C. NYSE Registration Office. D. Securities and Exchange Commission. E. Market Dealers Exchange.

D

Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which one of the following? A. Primary, dealer market B. Secondary, dealer market C. Primary, auction market D. Secondary, auction market E. Secondary, OTC market

D

The Balance Sheet Identity is: A. The value of the Owners Equity B. The same as the Net Working Capital C. The Sum of all assets minus the liabilities D. Assets = Liabilities + Owners Equity E. Assets + Liabilities = Owners Equity

D

Which one of the following describes a noncash item? A. Fixed expenses B. Inventory items purchased using credit C. Ownership of intangible assets such as patents D. Expenses that do not consume cash

D

Which one of the following is an agency cost? A. Accepting an investment opportunity that will add value to the firm B. Increasing the quarterly dividend C. Investing in a new project that creates firm value D. Hiring outside accountants to audit the company's financial statements E. Closing a division of the firm that is operating at a loss

D

Cash flow to stockholders =

Dividends paid - [(Common stock ending + ending Additional paid-in surplus) - (Common stock beginning + APIS beginning)]

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

E

The first thing reported on an income statement would usually be: A. Depreciation B. Financing expenses C. Interest paid D. Taxes paid E. Revenues.

E

Ultimately, the ______ control(s) the corporation. A. chair of the board B. members of the board of directors C. chief executive officer D. chief operating officer E. shareholders

E

Which of the following actions would be considered an agency problem? A. An owner of a sole proprietorship takes company office supplies for personal use B. Both partners in a general partnership close the office early one day to go skiing C. A manager in a corporation buys shares of the company's stock when the price falls D. A manager in a corporation makes online personal travel arrangements during work hours E. A shareholder in a corporation sells shares of the company's stock when the price rises

E

Which of the following actions would be most likely to decrease agency costs for the firm? A. Increase employees' salaries to exceed the salaries paid by competitors B. Pay all employees based on the amount of revenue generated by the firm C. Prohibit employees from becoming shareholders of the firm D. Pay bonuses to employees only if profits increase from one year to the next E. Reward high performing employees with shares of stock

E

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes. A. Compensation based on the value of the stock B. Stock option plans C. Threat of a company takeover D. Threat of a proxy fight E. Increasing managers' base salaries

E

OCF (operating cash flow) =

EBIT + Depreciation - Taxes

net new equity =

[(Common stock ending + ending Additional paid-in surplus) - (Common stock beginning + APIS beginning)]

Net Working Capital = ?

current assets - current liabilities

Net capital spending =

ending net fixed assets − beginning net fixed assets + depreciation

marginal tax rate =

tax bracket that the income falls into

average tax rate =

total tax paid divided by taxable income