Exam 3: Financial Statements,cash Flow and Taxes

Hartzell Inc.had the following data for 2017,in millions: Net income = $600;after-tax operating income [EBIT (1-T)] = $700;and Total assets = $2,000.Information for 2018 is as follows: Net income = $825;after-tax operating income [EBIT (1-T)] = $825;and Total assets = $2,500.Assume the firm had no excess cash.How much free cash flow did the firm generate during 2018?

Last year Besset Company's operations provided a negative cash flow,yet the cash shown on its balance sheet increased.Which of the following statements could explain the increase in cash,assuming the company's financial statements were prepared under generally accepted accounting principles (GAAP)?

Which of the following statements is CORRECT?

Appalachian Airlines began operating in 2014.The company lost money the first year but has been profitable ever since.The company's taxable income (EBT)for its first five years is listed below.Each year the company's corporate tax rate has been 40%. Year Taxable Income 2014 -\ 3,250,000 2015 \ 1,000,000 2016 \ 2,000,000 2017 \ 3,000,000 2018 \ 5,000,000 Assume that the company has taken full advantage of the Tax Code's carry-back,carry-forward provisions and that the current provisions were applicable in 2014.How much did the company pay in taxes in 2017?

Allen Corporation can (1)build a new plant that should generate a before-tax return of 11.00%,or (2)invest the same funds in the preferred stock of Florida Power & Light (FPL),which should provide Allen with a before-tax return of 9.00%,all in the form of dividends.Assume that Allen's marginal tax rate is 25.00%,and that 70.00% of dividends received are excluded from taxable income.If the plant project is divisible into small increments,and if the two investments are equally risky,what combination of these two possibilities will maximize Allen's effective return on the money invested? (Round your final answer to two decimal places. )

Scranton Shipyards has $8.0 million in total invested operating capital,and its WACC is 10%.Scranton has the following income statement: Sales \ 10.0 million Operating costs 6.0 million Operating income (EBIT) 4.0 million Interest expense 2.0 million Earnings before taxes (EBT) \ 2.0 million Taxes (40\%) 0.8 million Net income \ 1.2 million What is Scranton's EVA? Answer options are provided in whole dollar.

The first major section of a typical statement of cash flows is "Operating Activities," and the first entry in this section is "Net Income." Then,also in the first section,we show some items that represent increases or decreases to cash,and the last entry is called "Net Cash Provided by Operating Activities." This number can be either positive or negative,but if it is negative,the firm is almost certain to soon go bankrupt.

A corporate bond currently yields 8.70%.Municipal bonds with the same risk,maturity,and liquidity currently yield 5.50%.At what tax rate would investors be indifferent between the two bonds? (Round your final answer to two decimal places. )

To estimate the cash flow from operations,depreciation must be added back to net income because depreciation is a non-cash charge that has been deducted from revenue in the net income calculation.

Which of the following statements is CORRECT?

The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends and the riskiness of those cash flows.

​Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's net cash provided from operations increased,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share.If the company has $40 million of common equity on its balance sheet,what is the company's Market Value Added (MVA)? Answer options are provided in whole dollar.

Bradshaw Beverages began operations in 2014.The table below contains the company's taxable income during each year of its operations.Notice that the company lost money in each of its first three years.The corporate tax rate has been 40% each year. Year Taxable Income 2014 -\ 100,000 2015 -\ 500,000 2016 -\ 200,000 2017 \ 800,000 2018 \ 1,000,000 ? Assume that the company has taken full advantage of the Tax Code's carry-back,carry-forward provisions,and assume that the current provisions were applicable in 2014.How much did the company pay in taxes during 2018?

Brown Fashions Inc.'s December 31,2017 balance sheet showed total common equity of $4,050,000 and 195,000 shares of stock outstanding.During 2018,the firm had $450,000 of net income,and it paid out $100,000 as dividends.What was the book value per share at 12/31/18,assuming no common stock was either issued or retired during 2018? (Round your final answer to two decimal places. )

Moose Industries faces the following tax schedule: Taxable Income Tax on Base of Bracket Percentage on Excess above Base Up to \ 50,000 \ 0 15\% \ 50,000-\ 75,000 7,500 25 \ 75,000-\ 100,000 13,750 34 \ 100,000-\ 335,000 22,250 39 \ 335,000-\ 10,000,000 113,900 34 \ 10,000,000-\ 15,000,000 3,400,000 35 \ 15,000,000-\ 18,333,333 5,150,000 38 Over \ 18,333,333 6,416,667 35 Last year the company realized $9,000,000 in operating income (EBIT).Its annual interest expense is $1,500,000.What was the company's net income for the year?

An increase in accounts receivable represents an increase in net cash provided by operating activities because receivables will produce cash when they are collected.

If a firm is reporting its income in accordance with generally accepted accounting principles,then its net income as reported on the income statement should be equal to its free cash flow.

Which of the following statements is CORRECT?

Griffey Communications recently realized $122,500 in operating income.The company had interest income of $25,000 and realized $70,000 in dividend income.The company's interest expense was $40,000.Using the corporate tax schedule below,what is Griffey's tax liability? Taxable Income Tax on Base of Bracket Percentage on Excess above Base Up to \ 50,000 \ 0 15\% \ 50,000-\ 75,000 7,500 25 \ 75,000-\ 100,000 13,750 34 \ 100,000-\ 335,000 22,250 39 \ 335,000-\ 10,000,000 113,900 34 \ 10,000,000-\ 15,000,000 3,400,000 35 \ 15,000,000-\ 18,333,333 5,150,000 38 Over \ 18,333,333 6,416,667 35 ? Assume a 70% dividend exclusion for tax on dividends.