Question 1

Which one of the following is defined as income realized in cash form?

Accepted Answer

A) net income 
B) revenue 
C) cash flow 
D) retained earnings 
E) dividends 
A) net income 
B) revenue 
C) cash flow 
D) retained earnings 
E) dividends

Question 2

Healthy Supplements, Inc., paid $7,300 in interest and $4,300 in dividends for the year. The firm also issued $15,000 worth of new equity securities. What is the amount of the financing cash flow?

Accepted Answer

A) $2,500 
B) $3,400 
C) $6,800 
D) $7,700 
E) $10,700 
A) $2,500 
B) $3,400 
C) $6,800 
D) $7,700 
E) $10,700

Question 3

Investment cash flow is defined as which one of the following?

Accepted Answer

A) revenue minus expenses 
B) cash flow from the purchases and sales of fixed assets and investments 
C) cash flow originating from the issuance of securities 
D) cash generated by a firm's normal business activities 
E) pretax income 
A) revenue minus expenses 
B) cash flow from the purchases and sales of fixed assets and investments 
C) cash flow originating from the issuance of securities 
D) cash generated by a firm's normal business activities 
E) pretax income

Question 4

Operating cash flow is referred to as which one of the following?

Accepted Answer

A) revenue minus expenses 
B) cash realized from the sale of assets 
C) cash flow originating from the issuance of securities 
D) cash generated by a firm's normal business activities 
E) pretax income 
A) revenue minus expenses 
B) cash realized from the sale of assets 
C) cash flow originating from the issuance of securities 
D) cash generated by a firm's normal business activities 
E) pretax income

Question 5

Which two of the following are generally used to fund the external financing need?
I. sale of fixed assets
II. increase in accounts payable
III. issuance of long-term debt
IV. sale of equity securities

Accepted Answer

A) I and II 
B) I and III 
C) II and III 
D) II and IV 
E) III and IV 
A) I and II 
B) I and III 
C) II and III 
D) II and IV 
E) III and IV

Question 6

Which one of the following provides information on a firm's assets and liabilities as of a particular date?

Accepted Answer

A) cash flow statement 
B) pro forma income statement 
C) income statement 
D) tax return 
E) balance sheet 
A) cash flow statement 
B) pro forma income statement 
C) income statement 
D) tax return 
E) balance sheet

Question 7

What is the financing cash flow, given the following information?
$\begin{array}{lrr}
  \text {  Net income} &\$550\
 \text {Depreciation  } &\$60\
 \text {  Issuance of new stock} &\$25\
 \text { Repayment of long-term debt } &\$30\
 \text {Sale of old equipment  } &\$45\
 \text {  Purchase of new equipment} &\$65\
 \text {  Dividend payments} &\$70\
 \text {  Interest payments} &\$100\
\end{array}$

Accepted Answer

A) -$180 
B) -$150 
C) -$110 
D) (?)$75 
E) (?)$10 
A) -$180 
B) -$150 
C) -$110 
D) (?)$75 
E) (?)$10

Question 8

Pro forma financial statements are based on which one of the following?

Accepted Answer

A) projected future income, cash flows, and other noncash items 
B) historical revenue and expenses 
C) historical asset and liability values 
D) current period cash flows 
E) current period revenues and expenses 
A) projected future income, cash flows, and other noncash items 
B) historical revenue and expenses 
C) historical asset and liability values 
D) current period cash flows 
E) current period revenues and expenses

Question 9

Which of the following affect the earnings per share?I. decrease in interest expense
II. share repurchase
III. increase in tax rates
IV. preferred stock dividend

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 10

Net income is equal to which one of the following?

Accepted Answer

A) operating income plus interest expense minus taxes 
B) gross profit minus depreciation and interest expense 
C) pretax income plus income taxes 
D) dividends plus the change in retained earnings 
E) pretax income minus taxes and dividends 
A) operating income plus interest expense minus taxes 
B) gross profit minus depreciation and interest expense 
C) pretax income plus income taxes 
D) dividends plus the change in retained earnings 
E) pretax income minus taxes and dividends

Question 11

What is the operating cash flow, given the following information?
$\begin{array}{lrr}
  \text {  Net income} &\$825\
 \text {Depreciation  } &\$65\
 \text {  Issuance of new stock} &\$20\
 \text { Repayment of long-term debt } &\$35\
 \text {Sale of old equipment  } &\$40\
 \text {  Purchase of new equipment} &\$60\
 \text {  Dividend payments} &\$55\
 \text {  Interest payments} &\$80\
\end{array}$

Accepted Answer

A) $680 
B) $650 
C) $780 
D) $890 
E) $930 
A) $680 
B) $650 
C) $780 
D) $890 
E) $930

Question 12

A firm has $5,300 of cash, equipment worth $49,000, inventory of $30,000, $8,900 worth of patents, and $15,700 of accounts receivable. What is the value of the total current assets?

Accepted Answer

A) $21,000 
B) $30,000 
C) $51,000 
D) $59,900 
E) $108,900 
A) $21,000 
B) $30,000 
C) $51,000 
D) $59,900 
E) $108,900

Question 13

Material nonpublic information is defined as any information that could reasonably be expected to do which one of the following?

Accepted Answer

A) affect the price of the firm's securities 
B) cause great embarrassment to the firm 
C) cause one or more of the senior executives of the firm to resign 
D) cause the SEC to halt the trading of the firm's securities should that information become public 
E) affect the manner in which the firm presents its financial information 
A) affect the price of the firm's securities 
B) cause great embarrassment to the firm 
C) cause one or more of the senior executives of the firm to resign 
D) cause the SEC to halt the trading of the firm's securities should that information become public 
E) affect the manner in which the firm presents its financial information

Question 14

What is the financing cash flow, given the following information?
$\begin{array}{lrr}
  \text {  Net income} &\$800\
 \text {Depreciation  } &\$130\
 \text {  Issuance of new stock} &\$60\
 \text { Repayment of long-term debt } &\$80\
 \text {Sale of old equipment  } &\$50\
 \text {  Purchase of new equipment} &\$70\
 \text {  Dividend payments} &\$30\
 \text {  Interest payments} &\$90\
\end{array}$

Accepted Answer

A) $210 
B) $160 
C) $110 
D) $60 
E) $50 
A) $210 
B) $160 
C) $110 
D) $60 
E) $50

Question 15

A firm has sales of $1,090,000 and cost of goods sold of $739,000. The firm expects sales to increase by 5% next year. What is the gross profit amount expected to be next year if the firm uses the percentage of sales approach when compiling pro forma statements?

Accepted Answer

A) $235,100 
B) $265,000 
C) $333,450 
D) $362,500 
E) $368,550 
A) $235,100 
B) $265,000 
C) $333,450 
D) $362,500 
E) $368,550

Question 16

A decrease in which one of the following will increase the return on assets?

Accepted Answer

A) long-term debt 
B) sales 
C) inventory 
D) retained earnings 
E) dividends paid 
A) long-term debt 
B) sales 
C) inventory 
D) retained earnings 
E) dividends paid

Question 17

Carter's Books, Inc., has net income of $75,000 and a plowback ratio of 80%. There are 30,000 shares of stock outstanding at a market price of $25.50 a share. What is the price-earnings ratio?

Accepted Answer

A) 6.9 
B) 8.2 
C) 9.7 
D) 10.2 
E) 11.6 
A) 6.9 
B) 8.2 
C) 9.7 
D) 10.2 
E) 11.6

Question 18

Which one of the following will increase the investment cash flow?

Accepted Answer

A) purchase of a fixed asset 
B) issuing new shares of stock 
C) repaying a bond issue 
D) sale of a building 
E) payment of interest on a bond issue 
A) purchase of a fixed asset 
B) issuing new shares of stock 
C) repaying a bond issue 
D) sale of a building 
E) payment of interest on a bond issue

Question 19

A firm has net income of $22,500 and a book value per share of $3.10. The firm has 30,000 shares of stock outstanding and a price-earnings ratio of 15.9. What is the price-book ratio?

Accepted Answer

A) 1.7 
B) 2.4 
C) 2.7 
D) 3.8 
E) 4.3 
A) 1.7 
B) 2.4 
C) 2.7 
D) 3.8 
E) 4.3

Question 20

Sander's Auto recently purchased Auto Express for $9.8 million. Auto Express had a market value of $9.5 million at the time of acquisition. The additional $.3 million that Sander's Auto paid for Auto Express will be treated on Sander's Auto's balance sheet as which type of account?

Accepted Answer

A) patent 
B) depreciation 
C) licenses 
D) goodwill 
E) acquisition expense 
A) patent 
B) depreciation 
C) licenses 
D) goodwill 
E) acquisition expense

Exam 19: Projecting Cash Flow and Earnings

Which one of the following is defined as income realized in cash form?

Healthy Supplements, Inc., paid $7,300 in interest and $4,300 in dividends for the year. The firm also issued $15,000 worth of new equity securities. What is the amount of the financing cash flow?

Investment cash flow is defined as which one of the following?

Operating cash flow is referred to as which one of the following?

Which two of the following are generally used to fund the external financing need? I. sale of fixed assets II. increase in accounts payable III. issuance of long-term debt IV. sale of equity securities

Which one of the following provides information on a firm's assets and liabilities as of a particular date?

What is the financing cash flow, given the following information? Net income \5 50 Depreciation \6 0 Issuance of new stock \2 5 Repayment of long-term debt \3 0 Sale of old equipment \4 5 Purchase of new equipment \6 5 Dividend payments \7 0 Interest payments \1 00

Pro forma financial statements are based on which one of the following?

Which of the following affect the earnings per share?I. decrease in interest expense II. share repurchase III. increase in tax rates IV. preferred stock dividend

Net income is equal to which one of the following?

What is the operating cash flow, given the following information? Net income \8 25 Depreciation \6 5 Issuance of new stock \2 0 Repayment of long-term debt \3 5 Sale of old equipment \4 0 Purchase of new equipment \6 0 Dividend payments \5 5 Interest payments \8 0

A firm has $5,300 of cash, equipment worth $49,000, inventory of $30,000, $8,900 worth of patents, and $15,700 of accounts receivable. What is the value of the total current assets?

Material nonpublic information is defined as any information that could reasonably be expected to do which one of the following?

What is the financing cash flow, given the following information? Net income \8 00 Depreciation \1 30 Issuance of new stock \6 0 Repayment of long-term debt \8 0 Sale of old equipment \5 0 Purchase of new equipment \7 0 Dividend payments \3 0 Interest payments \9 0

A firm has sales of $1,090,000 and cost of goods sold of $739,000. The firm expects sales to increase by 5% next year. What is the gross profit amount expected to be next year if the firm uses the percentage of sales approach when compiling pro forma statements?

A decrease in which one of the following will increase the return on assets?

Carter's Books, Inc., has net income of $75,000 and a plowback ratio of 80%. There are 30,000 shares of stock outstanding at a market price of $25.50 a share. What is the price-earnings ratio?

Which one of the following will increase the investment cash flow?

A firm has net income of $22,500 and a book value per share of $3.10. The firm has 30,000 shares of stock outstanding and a price-earnings ratio of 15.9. What is the price-book ratio?

Sander's Auto recently purchased Auto Express for $9.8 million. Auto Express had a market value of $9.5 million at the time of acquisition. The additional $.3 million that Sander's Auto paid for Auto Express will be treated on Sander's Auto's balance sheet as which type of account?

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