Question 1

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

Accepted Answer

A)  operating cash flow. 
B)  net capital spending. 
C)  net working capital. 
D)  cash flow from assets. 
E)  cash flow to stockholders. 
A)  operating cash flow. 
B)  net capital spending. 
C)  net working capital. 
D)  cash flow from assets. 
E)  cash flow to stockholders.

Question 2

Which one of the following statements related to the cash flow to creditors must be correct?

Accepted Answer

A)  If the cash flow to creditors is positive, then the firm must have borrowed more money than it repaid. 
B)  If the cash flow to creditors is negative, then the firm must have a negative cash flow from assets. 
C)  A positive cash flow to creditors represents a net cash outflow from the firm. 
D)  A positive cash flow to creditors means that a firm has increased its long-term debt. 
E)  If the cash flow to creditors is zero, then a firm has no long-term debt. 
A)  If the cash flow to creditors is positive, then the firm must have borrowed more money than it repaid. 
B)  If the cash flow to creditors is negative, then the firm must have a negative cash flow from assets. 
C)  A positive cash flow to creditors represents a net cash outflow from the firm. 
D)  A positive cash flow to creditors means that a firm has increased its long-term debt. 
E)  If the cash flow to creditors is zero, then a firm has no long-term debt.

Question 3

The Daily News has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. Assume the company will have net sales of  $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

Accepted Answer

A)  −$75,000 
B)  $1,328 
C)  $24,623.52 
D)  $76,328 
E)  $151,328 
A)  −$75,000 
B)  $1,328 
C)  $24,623.52 
D)  $76,328 
E)  $151,328

Question 4

Which one of the following represents the most liquid asset?

Accepted Answer

A)  $100 account receivable that is discounted and collected for $96 today 
B)  $100 of inventory that is sold today on credit for $103 
C)  $100 of inventory that is discounted and sold for $97 cash today 
D)  $100 of inventory that is sold today for $100 cash 
E)  $100 of accounts receivable that will be collected in full next week 
A)  $100 account receivable that is discounted and collected for $96 today 
B)  $100 of inventory that is sold today on credit for $103 
C)  $100 of inventory that is discounted and sold for $97 cash today 
D)  $100 of inventory that is sold today for $100 cash 
E)  $100 of accounts receivable that will be collected in full next week

Question 5

The cash flow related to interest payments less any net new borrowing is called the:

Accepted Answer

A)  operating cash flow. 
B)  capital spending cash flow. 
C)  net working capital. 
D)  cash flow from assets. 
E)  cash flow to creditors. 
A)  operating cash flow. 
B)  capital spending cash flow. 
C)  net working capital. 
D)  cash flow from assets. 
E)  cash flow to creditors.

Question 6

Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

Accepted Answer

A)  $142,750 
B)  $123,240 
C)  $109,000 
D)  $128,700 
E)  $134,550 
A)  $142,750 
B)  $123,240 
C)  $109,000 
D)  $128,700 
E)  $134,550

Question 7

The Widget Co. purchased all of its fixed assets three years ago for $4 million. These assets can be sold today for $2 million. The current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the total assets today is ________ and the market value of those assets is ________.

Accepted Answer

A)  $4,600,000; $3,900,000 
B)  $4,600,000; $3,125,000 
C)  $5,000,000; $3,125,000 
D)  $5,000,000; $3,900,000 
E)  $6,500,000; $3,900,000 
A)  $4,600,000; $3,900,000 
B)  $4,600,000; $3,125,000 
C)  $5,000,000; $3,125,000 
D)  $5,000,000; $3,900,000 
E)  $6,500,000; $3,900,000

Question 8

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Accepted Answer

A)  Income statement 
B)  Creditor's statement 
C)  Balance sheet 
D)  Statement of cash flows 
E)  Dividend statement 
A)  Income statement 
B)  Creditor's statement 
C)  Balance sheet 
D)  Statement of cash flows 
E)  Dividend statement

Question 9

Which one of the following is true according to generally accepted accounting principles?

Accepted Answer

A)  Depreciation is recorded based on the market value principle. 
B)  Income is recorded based on the realization principle. 
C)  Costs are recorded based on the realization principle. 
D)  Depreciation is recorded based on the recognition principle. 
E)  Costs of goods sold are recorded based on the recognition principle. 
A)  Depreciation is recorded based on the market value principle. 
B)  Income is recorded based on the realization principle. 
C)  Costs are recorded based on the realization principle. 
D)  Depreciation is recorded based on the recognition principle. 
E)  Costs of goods sold are recorded based on the recognition principle.

Question 10

During the year, RIT Corp. had sales of $565,600. Costs of goods sold, administrative and selling expenses, and depreciation expenses were $476,000, $58,800, and $42,800, respectively. In addition, the company had an interest expense of $112,000 and a tax rate of 22 percent. What is the operating cash flow for the year? Ignore any tax loss carry-forward provisions.

Accepted Answer

A)  $17,920 
B)  $21,840 
C)  $30,800 
D)  $52,600 
E)  $77,840 
A)  $17,920 
B)  $21,840 
C)  $30,800 
D)  $52,600 
E)  $77,840

Question 11

Nu Furniture has sales of $241,000, depreciation of $32,200, interest expense of $35,700, costs of $103,400, and taxes of $14,637. What is the operating cash flow for the year?

Accepted Answer

A)  $108,229 
B)  $121,367 
C)  $122,963 
D)  $117,766 
E)  $128,037 
A)  $108,229 
B)  $121,367 
C)  $122,963 
D)  $117,766 
E)  $128,037

Question 12

Global Tours has beginning current assets of $1,360, beginning current liabilities of $940, ending current assets of $1,720, and ending current liabilities of $1,080. What is the change in net working capital?

Accepted Answer

A)  $220 
B)  $170 
C)  $190 
D)  $940 
E)  $1,060 
A)  $220 
B)  $170 
C)  $190 
D)  $940 
E)  $1,060

Question 13

Cash flow from assets is also known as the firm's:

Accepted Answer

A)  capital structure. 
B)  equity structure. 
C)  hidden cash flow. 
D)  free cash flow. 
E)  historical cash flow. 
A)  capital structure. 
B)  equity structure. 
C)  hidden cash flow. 
D)  free cash flow. 
E)  historical cash flow.

Question 14

BK Enterprises neither sold nor repurchased any shares of stock during the year. The firm had annual sales of $7,202, depreciation of $1,196, cost of goods sold of $4,509, interest expense of $318, taxes of $248, beginning-of-year shareholders' equity of $4,808, and end-of-year shareholders' equity of $4,922. What is the amount of dividends paid during the year?

Accepted Answer

A)  $817 
B)  $1,009 
C)  $864 
D)  $709 
E)  $515 
A)  $817 
B)  $1,009 
C)  $864 
D)  $709 
E)  $515

Question 15

Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?

Accepted Answer

A)  $2,893 
B)  $1,282 
C)  $740 
D)  $1,611 
E)  $2,351 
A)  $2,893 
B)  $1,282 
C)  $740 
D)  $1,611 
E)  $2,351

Question 16

The Beach Shoppe has beginning total debt of $682,400 and ending total debt of $697,413. Current liabilities increased by $18,915 during the year. What was the cash flow to creditors if the firm paid $34,215 in interest during the year?

Accepted Answer

A)  $384 
B)  $287 
C)  $38,117 
D)  $20,228 
E)  $19,202 
A)  $384 
B)  $287 
C)  $38,117 
D)  $20,228 
E)  $19,202

Question 17

Winston Industries had sales of $843,800 and costs of $609,900. The company paid $38,200 in interest and $35,000 in dividends. The depreciation was $76,400. The firm has a combined tax rate of 24 percent. What was the addition to retained earnings for the year?

Accepted Answer

A)  $55,668 
B)  $57,240 
C)  $61,060 
D)  $56,200 
E)  $68,400 
A)  $55,668 
B)  $57,240 
C)  $61,060 
D)  $56,200 
E)  $68,400

Question 18

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

Accepted Answer

A)  Income statement 
B)  Balance sheet 
C)  Statement of cash flows 
D)  Tax reconciliation statement 
E)  Market value report 
A)  Income statement 
B)  Balance sheet 
C)  Statement of cash flows 
D)  Tax reconciliation statement 
E)  Market value report

Question 19

For 2017, Nevada Mining had projected taxable income of $94,800. Its actual taxable income exceeded this projection by $21,000. How much additional tax did the firm owe due to the $21,000 increase in taxable income? $\begin{array}{c}
\begin{array}{c}
\text { Taxable Income }\
\begin{array}{lll}
\$0&\text { - } &50,000 \
50,001 &\text { - } &75,000 \
75,001&\text { - } &100,000 \
100,001&\text { - } &335,000 \
\end{array}
\end{array}
\begin{array}{c}
\text { Tax Rate}\
15 \% \
25 \
34 \
39
\end{array}
\end{array}$

Accepted Answer

A)  $7,930 
B)  $8,036 
C)  $8,150 
D)  $7,682 
E)  $8,197 
A)  $7,930 
B)  $8,036 
C)  $8,150 
D)  $7,682 
E)  $8,197

Question 20

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What was the amount of the cash flow to stockholders?

Accepted Answer

A)  $5,100 
B)  $7,830 
C)  $18,020 
D)  $19,998 
E)  $20,680 
A)  $5,100 
B)  $7,830 
C)  $18,020 
D)  $19,998 
E)  $20,680

Exam 2: Financial Statements, Taxes, and Cash Flow

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

Which one of the following statements related to the cash flow to creditors must be correct?

The Daily News has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?

Which one of the following represents the most liquid asset?

The cash flow related to interest payments less any net new borrowing is called the:

Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Which one of the following is true according to generally accepted accounting principles?

Nu Furniture has sales of $241,000, depreciation of $32,200, interest expense of $35,700, costs of $103,400, and taxes of $14,637. What is the operating cash flow for the year?

Global Tours has beginning current assets of $1,360, beginning current liabilities of $940, ending current assets of $1,720, and ending current liabilities of $1,080. What is the change in net working capital?

Cash flow from assets is also known as the firm's:

Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?

The Beach Shoppe has beginning total debt of $682,400 and ending total debt of $697,413. Current liabilities increased by $18,915 during the year. What was the cash flow to creditors if the firm paid $34,215 in interest during the year?

Winston Industries had sales of $843,800 and costs of $609,900. The company paid $38,200 in interest and $35,000 in dividends. The depreciation was $76,400. The firm has a combined tax rate of 24 percent. What was the addition to retained earnings for the year?

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What was the amount of the cash flow to stockholders?

Introduction to Corporate Finance

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

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