Question 1

Which equality is the basis for the balance sheet?

Accepted Answer

A)  Fixed Assets = Stockholder's Equity + Current Assets 
B)  Assets = Liabilities + Stockholder's Equity 
C)  Assets = Current Long-Term Debt + Retained Earnings 
D)  Fixed Assets = Liabilities + Stockholder's Equity 
E)  None of these. 
A)  Fixed Assets = Stockholder's Equity + Current Assets 
B)  Assets = Liabilities + Stockholder's Equity 
C)  Assets = Current Long-Term Debt + Retained Earnings 
D)  Fixed Assets = Liabilities + Stockholder's Equity 
E)  None of these. B

Question 2

Martha's Enterprises spent $2,500 to purchase equipment three years ago. This equipment is currently valued at $2,000 on today's balance sheet but could actually be sold for $2,200. Net working capital is $300 and long-term debt is $900. Assuming the equipment is the firm's only fixed asset,what is the book value of shareholders' equity?

Accepted Answer

A)  $1,100 
B)  $1,400 
C)  $1,600 
D)  $1,900 
E)  The answer cannot be determined from the information provided 
A)  $1,100 
B)  $1,400 
C)  $1,600 
D)  $1,900 
E)  The answer cannot be determined from the information provided B

Question 3

Awnings Incorporated has beginning net fixed assets of $560 and ending net fixed assets of $720. Assets valued at $210 were sold during the year. Depreciation was $50. What is the amount of capital spending?

Accepted Answer

A)  $110 
B)  $160 
C)  $210 
D)  $300 
E)  $420 
A)  $110 
B)  $160 
C)  $210 
D)  $300 
E)  $420 C

Question 4

What is the taxable income for 2011?

Accepted Answer

A)  $360 
B)  $520 
C)  $640 
D)  $780 
E)  $800 
A)  $360 
B)  $520 
C)  $640 
D)  $780 
E)  $800

Question 5

As seen on an income statement:

Accepted Answer

A)  interest is deducted from income and increases the total taxes incurred. 
B)  the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses. 
C)  depreciation is shown as an expense but does not affect the taxes payable. 
D)  depreciation reduces both the pretax income and the net income. 
E)  interest expense is added to earnings before interest and taxes to get pretax incomE. 
A)  interest is deducted from income and increases the total taxes incurred. 
B)  the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses. 
C)  depreciation is shown as an expense but does not affect the taxes payable. 
D)  depreciation reduces both the pretax income and the net income. 
E)  interest expense is added to earnings before interest and taxes to get pretax incomE.

Question 6

Under GAAP,a firm's assets are reported at:

Accepted Answer

A)  market value. 
B)  liquidation value. 
C)  intrinsic value. 
D)  cost. 
E)  None of these. 
A)  market value. 
B)  liquidation value. 
C)  intrinsic value. 
D)  cost. 
E)  None of these.

Question 7

According to generally accepted accounting principles (GAAP),revenue is recognized as income when:

Accepted Answer

A)  a contract is signed to perform a service or deliver a good. 
B)  the transaction is complete and the goods or services are delivered. 
C)  payment is requested. 
D)  income taxes are paid. 
E)  All of 
A)  a contract is signed to perform a service or deliver a good. 
B)  the transaction is complete and the goods or services are delivered. 
C)  payment is requested. 
D)  income taxes are paid. 
E)  All of

Question 8

Why is interest expense excluded from the operating cash flow calculation?

Accepted Answer

Operating cash flow is designed to repre

Question 9

Free cash flow is:

Accepted Answer

A)  without cost to the firm. 
B)  net income plus taxes. 
C)  an increase in net working capital. 
D)  cash that the firm is free to distribute to creditors and stockholders. 
E)  None of these. 
A)  without cost to the firm. 
B)  net income plus taxes. 
C)  an increase in net working capital. 
D)  cash that the firm is free to distribute to creditors and stockholders. 
E)  None of these.

Question 10

Earnings per share

Accepted Answer

A)  will increase if net income increases and number of shares remains constant. 
B)  will increase if net income decreases and number of shares remains constant. 
C)  is number of shares divided by net income. 
D)  is the amount of money that goes into retained earnings on a per share basis. 
E)  None of these. 
A)  will increase if net income increases and number of shares remains constant. 
B)  will increase if net income decreases and number of shares remains constant. 
C)  is number of shares divided by net income. 
D)  is the amount of money that goes into retained earnings on a per share basis. 
E)  None of these.

Question 11

_____ refers to the firm's dividend payments less any net new equity raised.

Accepted Answer

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

Question 12

Which of the following are included in current liabilities?
I. Note payable to a supplier in eighteen months
II. Debt payable to a mortgage company in nine months
III. Accounts payable to suppliers
IV. Loan payable to the bank in fourteen months

Accepted Answer

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

Question 13

What is the amount of the non-cash expenses for 2011?

Accepted Answer

A)  $570 
B)  $630 
C)  $845 
D)  $1,370 
E)  $2,000 
A)  $570 
B)  $630 
C)  $845 
D)  $1,370 
E)  $2,000

Question 14

An increase in which one of the following will cause the operating cash flow to increase?

Accepted Answer

A)  depreciation 
B)  changes in the amount of net fixed capital 
C)  net working capital 
D)  taxes 
E)  costs 
A)  depreciation 
B)  changes in the amount of net fixed capital 
C)  net working capital 
D)  taxes 
E)  costs

Question 15

What is the cash flow to creditors for 2011?

Accepted Answer

A)  -$170 
B)  -$35 
C)  $135 
D)  $170 
E)  $205 
A)  -$170 
B)  -$35 
C)  $135 
D)  $170 
E)  $205

Question 16

Which one of the following statements concerning liquidity is correct?

Accepted Answer

A)  If you sold an asset today, it was a liquid asset. 
B)  If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid. 
C)  Trademarks and patents are highly liquid. 
D)  The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties. 
E)  Balance sheet accounts are listed in order of decreasing liquidity. 
A)  If you sold an asset today, it was a liquid asset. 
B)  If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid. 
C)  Trademarks and patents are highly liquid. 
D)  The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties. 
E)  Balance sheet accounts are listed in order of decreasing liquidity.

Question 17

Net working capital is defined as:

Accepted Answer

A)  total liabilities minus shareholders' equity. 
B)  current liabilities minus shareholders' equity. 
C)  fixed assets minus long-term liabilities. 
D)  total assets minus total liabilities. 
E)  current assets minus current liabilities. 
A)  total liabilities minus shareholders' equity. 
B)  current liabilities minus shareholders' equity. 
C)  fixed assets minus long-term liabilities. 
D)  total assets minus total liabilities. 
E)  current assets minus current liabilities.

Question 18

At the beginning of the year,a firm has current assets of $420 and current liabilities of $380. At the end of the year,the current assets are $500 and the current liabilities are $410. What is the change in net working capital?

Accepted Answer

A)  -$80 
B)  -$50 
C)  $0 
D)  $50 
E)  $80 
A)  -$80 
B)  -$50 
C)  $0 
D)  $50 
E)  $80

Question 19

Dividends per share:

Accepted Answer

A)  increase as the net income increases as long as the number of shares outstanding remains constant. 
B)  decrease as the number of shares outstanding decrease, all else constant. 
C)  are inversely related to the earnings per share. 
D)  are based upon the dividend requirements established by Generally Accepted Accounting Procedures. 
E)  are equal to the amount of net income distributed to shareholders divided by the number of shares outstanding. 
A)  increase as the net income increases as long as the number of shares outstanding remains constant. 
B)  decrease as the number of shares outstanding decrease, all else constant. 
C)  are inversely related to the earnings per share. 
D)  are based upon the dividend requirements established by Generally Accepted Accounting Procedures. 
E)  are equal to the amount of net income distributed to shareholders divided by the number of shares outstanding.

Question 20

What is the change in the net working capital from 2010 to 2011?

Accepted Answer

A)  $1,235 
B)  $1,035 
C)  $1,335 
D)  $3,405 
E)  $4,740 
A)  $1,235 
B)  $1,035 
C)  $1,335 
D)  $3,405 
E)  $4,740

Exam 2: Financial Statements and Cash Flow

Which equality is the basis for the balance sheet?

Awnings Incorporated has beginning net fixed assets of $560 and ending net fixed assets of $720. Assets valued at $210 were sold during the year. Depreciation was $50. What is the amount of capital spending?

What is the taxable income for 2011?

As seen on an income statement:

Under GAAP,a firm's assets are reported at:

According to generally accepted accounting principles (GAAP),revenue is recognized as income when:

Why is interest expense excluded from the operating cash flow calculation?

Free cash flow is:

Earnings per share

_____ refers to the firm's dividend payments less any net new equity raised.

Which of the following are included in current liabilities? I. Note payable to a supplier in eighteen months II. Debt payable to a mortgage company in nine months III. Accounts payable to suppliers IV. Loan payable to the bank in fourteen months

What is the amount of the non-cash expenses for 2011?

An increase in which one of the following will cause the operating cash flow to increase?

What is the cash flow to creditors for 2011?

Which one of the following statements concerning liquidity is correct?

Net working capital is defined as:

At the beginning of the year,a firm has current assets of $420 and current liabilities of $380. At the end of the year,the current assets are $500 and the current liabilities are $410. What is the change in net working capital?

Dividends per share:

What is the change in the net working capital from 2010 to 2011?

Introduction to Corporate Finance

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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