Question 1

The percentage of the next dollar you earn that must be paid in taxes is referred to as the ________ tax rate.

Accepted Answer

A)  mean 
B)  residual 
C)  total 
D)  average 
E)  marginal 
A)  mean 
B)  residual 
C)  total 
D)  average 
E)  marginal

Question 2

A positive cash flow to stockholders indicates which one of the following with certainty?

Accepted Answer

A)  The dividends paid exceeded the net new equity raised. 
B)  The amount of the sale of common stock exceeded the amount of dividends paid. 
C)  No dividends were distributed, but new shares of stock were sold. 
D)  Both the cash flow to assets and the cash flow to creditors must be negative. 
E)  Both the cash flow to assets and the cash flow to creditors must be positive. 
A)  The dividends paid exceeded the net new equity raised. 
B)  The amount of the sale of common stock exceeded the amount of dividends paid. 
C)  No dividends were distributed, but new shares of stock were sold. 
D)  Both the cash flow to assets and the cash flow to creditors must be negative. 
E)  Both the cash flow to assets and the cash flow to creditors must be positive.

Question 3

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

Accepted Answer

A)  $2,050 
B)  $2,920 
C)  $4,130 
D)  $7,950 
E)  $6,890 
A)  $2,050 
B)  $2,920 
C)  $4,130 
D)  $7,950 
E)  $6,890

Question 4

As the degree of financial leverage increases, the:

Accepted Answer

A)  probability a firm will encounter financial distress increases. 
B)  amount of a firm's total debt decreases. 
C)  less debt a firm has per dollar of total assets. 
D)  number of outstanding shares of stock increases. 
E)  accounts payable balance decreases. 
A)  probability a firm will encounter financial distress increases. 
B)  amount of a firm's total debt decreases. 
C)  less debt a firm has per dollar of total assets. 
D)  number of outstanding shares of stock increases. 
E)  accounts payable balance decreases.

Question 5

Noncash items refer to:

Accepted Answer

A)  fixed expenses. 
B)  inventory items purchased using credit. 
C)  the ownership of intangible assets such as patents. 
D)  expenses that do not directly affect cash flows. 
E)  sales that are made using store credit. 
A)  fixed expenses. 
B)  inventory items purchased using credit. 
C)  the ownership of intangible assets such as patents. 
D)  expenses that do not directly affect cash flows. 
E)  sales that are made using store credit.

Question 6

CBC Industries has sales of $21,415, interest paid of $1,282, costs of $9,740, and depreciation of $1,480. What is the operating cash flow if the tax rate is 22 percent?

Accepted Answer

A)  $10,114.14 
B)  $9,900.86 
C)  $8,985.86 
D)  $8,536.67 
E)  $9,714.14 
A)  $10,114.14 
B)  $9,900.86 
C)  $8,985.86 
D)  $8,536.67 
E)  $9,714.14

Question 7

Hayes Bakery has sales of $30,600, costs of $15,350, an addition to retained earnings of $4,221, dividends paid of $469, interest expense of $1,300, and a tax rate of 21 percent. What is the amount of the depreciation expense?

Accepted Answer

A)  $4,820.13 
B)  $5,500.89 
C)  $8,013.29 
D)  $8,180.01 
E)  $9,500.00 
A)  $4,820.13 
B)  $5,500.89 
C)  $8,013.29 
D)  $8,180.01 
E)  $9,500.00

Question 8

Which one of the following is a current asset?

Accepted Answer

A)  Accounts payable 
B)  Trademark 
C)  Accounts receivable 
D)  Notes payable 
E)  Equipment 
A)  Accounts payable 
B)  Trademark 
C)  Accounts receivable 
D)  Notes payable 
E)  Equipment

Question 9

Up Towne Cleaners has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year?

Accepted Answer

A)  $18,942 
B)  $19,948 
C)  $19,374 
D)  $18,431 
E)  $18,574 
A)  $18,942 
B)  $19,948 
C)  $19,374 
D)  $18,431 
E)  $18,574

Question 10

Which term relates to the cash flow that results from a company's ongoing, normal business activities?

Accepted Answer

A)  Operating cash flow 
B)  Capital spending 
C)  Net working capital 
D)  Cash flow from assets 
E)  Cash flow to creditors 
A)  Operating cash flow 
B)  Capital spending 
C)  Net working capital 
D)  Cash flow from assets 
E)  Cash flow to creditors

Question 11

Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity?

Accepted Answer

A)  $31,400 
B)  $47,700 
C)  $35,900 
D)  $249,400 
E)  $253,900 
A)  $31,400 
B)  $47,700 
C)  $35,900 
D)  $249,400 
E)  $253,900

Question 12

What is the average tax rate for a firm with taxable income of $118,740 in 2017?  
$\begin{array}{c}
\begin{array}{c}
\text { Taxable Income }\
\begin{array}{lll}
\$0&\text { - } &50,000 \
50,001 &\text { - } &75,000 \
75,001&\text { - } &100,000 \
100,001&\text { - } &335,000 \
\end{array}
\end{array}
\begin{array}{c}
\text { Tax Rate}\
15 \% \
25 \
34 \
39
\end{array}
\end{array}$

Accepted Answer

A)  26.68 percent 
B)  34.87 percent 
C)  24.89 percent 
D)  36.67 percent 
E)  39.00 percent 
A)  26.68 percent 
B)  34.87 percent 
C)  24.89 percent 
D)  36.67 percent 
E)  39.00 percent

Question 13

Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

Accepted Answer

A)  $33,763 
B)  $40,706 
C)  $58,218 
D)  $65,161 
E)  $67,408 
A)  $33,763 
B)  $40,706 
C)  $58,218 
D)  $65,161 
E)  $67,408

Question 14

Which one of the following will decrease the value of a firm's net working capital?

Accepted Answer

A)  Using cash to pay a supplier 
B)  Depreciating an asset 
C)  Collecting an accounts receivable 
D)  Purchasing inventory on credit 
E)  Selling inventory at a loss 
A)  Using cash to pay a supplier 
B)  Depreciating an asset 
C)  Collecting an accounts receivable 
D)  Purchasing inventory on credit 
E)  Selling inventory at a loss

Question 15

Net capital spending:

Accepted Answer

A)  is equal to ending net fixed assets minus beginning net fixed assets. 
B)  is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense. 
C)  reflects the net changes in total assets over a stated period of time. 
D)  is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. 
E)  is equal to the net change in the current accounts. 
A)  is equal to ending net fixed assets minus beginning net fixed assets. 
B)  is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense. 
C)  reflects the net changes in total assets over a stated period of time. 
D)  is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital. 
E)  is equal to the net change in the current accounts.

Question 16

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow?

Accepted Answer

A)  $108,410 
B)  $108,320 
C)  $109,924 
D)  $106,417 
E)  $109,085 
A)  $108,410 
B)  $108,320 
C)  $109,924 
D)  $106,417 
E)  $109,085

Question 17

Which one of these sets forth the common set of standards and procedures by which audited financial statements are prepared?

Accepted Answer

A)  Matching principle 
B)  Cash flow identity 
C)  Generally Accepted Accounting Principles 
D)  Financial Accounting Reporting Principles 
E)  Standard Accounting Value Guidelines 
A)  Matching principle 
B)  Cash flow identity 
C)  Generally Accepted Accounting Principles 
D)  Financial Accounting Reporting Principles 
E)  Standard Accounting Value Guidelines

Question 18

Which one of the following statements related to liquidity is correct?

Accepted Answer

A)  Liquid assets tend to earn a high rate of return. 
B)  Liquid assets are valuable to a firm. 
C)  Liquid assets are defined as assets that can be sold quickly regardless of the price obtained. 
D)  Inventory is more liquid than accounts receivable because inventory is tangible. 
E)  Any asset that can be sold is considered liquid. 
A)  Liquid assets tend to earn a high rate of return. 
B)  Liquid assets are valuable to a firm. 
C)  Liquid assets are defined as assets that can be sold quickly regardless of the price obtained. 
D)  Inventory is more liquid than accounts receivable because inventory is tangible. 
E)  Any asset that can be sold is considered liquid.

Question 19

Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital?

Accepted Answer

A)  $149,900 
B)  $93,500 
C)  $125,600 
D)  −$47,500 
E)  $56,500 
A)  $149,900 
B)  $93,500 
C)  $125,600 
D)  −$47,500 
E)  $56,500

Question 20

JJ Enterprises has current assets of $10,406, long-term debt of $4,780, and current liabilities of $9,822 at the beginning of the year. At year end, current assets are $11,318, long-term debt is $5,010, and current liabilities are $9,741. The firm paid $277 in interest and $320 in dividends during the year. What is the cash flow to creditors for the year?

Accepted Answer

A)  −$47 
B)  −$507 
C)  −$97 
D)  $47 
E)  $507 
A)  −$47 
B)  −$507 
C)  −$97 
D)  $47 
E)  $507

Exam 2: Financial Statements, Taxes, and Cash Flow

The percentage of the next dollar you earn that must be paid in taxes is referred to as the ________ tax rate.

A positive cash flow to stockholders indicates which one of the following with certainty?

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

As the degree of financial leverage increases, the:

Noncash items refer to:

CBC Industries has sales of $21,415, interest paid of $1,282, costs of $9,740, and depreciation of $1,480. What is the operating cash flow if the tax rate is 22 percent?

Hayes Bakery has sales of $30,600, costs of $15,350, an addition to retained earnings of $4,221, dividends paid of $469, interest expense of $1,300, and a tax rate of 21 percent. What is the amount of the depreciation expense?

Which one of the following is a current asset?

Up Towne Cleaners has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year?

Which term relates to the cash flow that results from a company's ongoing, normal business activities?

What is the average tax rate for a firm with taxable income of $118,740 in 2017? Taxable Income \0 - 50,000 50,001 - 75,000 75,001 - 100,000 100,001 - 335,000 Tax Rate 15\% 25 34 39

Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?

Which one of the following will decrease the value of a firm's net working capital?

Net capital spending:

RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow?

Which one of these sets forth the common set of standards and procedures by which audited financial statements are prepared?

Which one of the following statements related to liquidity is correct?

Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital?

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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