Question 1

Discuss the difference between book values and market values on the balance sheet and explain which is more important to the financial manager and why.

Accepted Answer

The accounts on the balance sheet are ge

Question 2

When making financial decisions related to assets,you should:

Accepted Answer

A)  always consider market values. 
B)  place more emphasis on book values than on market values. 
C)  rely primarily on the value of assets as shown on the balance sheet. 
D)  place primary emphasis on historical costs. 
E)  only consider market values if they are less than book values. 
A)  always consider market values. 
B)  place more emphasis on book values than on market values. 
C)  rely primarily on the value of assets as shown on the balance sheet. 
D)  place primary emphasis on historical costs. 
E)  only consider market values if they are less than book values.

Question 3

One of the reasons why cash flow analysis is popular is because:

Accepted Answer

A)  cash flows are more subjective than net income. 
B)  cash flows are hard to understand. 
C)  it is easy to manipulate, or spin the cash flows. 
D)  it is difficult to manipulate, or spin the cash flows. 
E)  None of these. 
A)  cash flows are more subjective than net income. 
B)  cash flows are hard to understand. 
C)  it is easy to manipulate, or spin the cash flows. 
D)  it is difficult to manipulate, or spin the cash flows. 
E)  None of these.

Question 4

_____ refers to the firm's interest payments less any net new borrowing.

Accepted Answer

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

Question 5

A firm has $450 in inventory,$700 in fixed assets,$210 in accounts receivable,$50 in accounts payable,and $60 in cash. What is the amount of the current assets?

Accepted Answer

A)  $510 
B)  $560 
C)  $600 
D)  $660 
E)  $720 
A)  $510 
B)  $560 
C)  $600 
D)  $660 
E)  $720

Question 6

Which one of the following assets is generally the most liquid?

Accepted Answer

A)  inventory 
B)  buildings 
C)  accounts receivable 
D)  equipment 
E)  patents 
A)  inventory 
B)  buildings 
C)  accounts receivable 
D)  equipment 
E)  patents

Question 7

What is the amount of the net capital spending for 2011?

Accepted Answer

A)  -$290 
B)  $795 
C)  $1,080 
D)  $1,660 
E)  $2,165 
A)  -$290 
B)  $795 
C)  $1,080 
D)  $1,660 
E)  $2,165

Question 8

Note that in all of our cash flow computations to determine cash flow of the firm,we never include the addition to retained earnings. Why not?
 Is this an oversight?

Accepted Answer

The addition to retained earnings is not

Question 9

What is the cash flow to creditors for 2011?

Accepted Answer

A)  -$405 
B)  -$225 
C)  $225 
D)  $405 
E)  $630 
A)  -$405 
B)  -$225 
C)  $225 
D)  $405 
E)  $630

Question 10

Thompson's Jet Skis has operating cash flow of $218. Depreciation is $45 and interest paid is $35. A net total of $69 was paid on long-term debt. The firm spent $180 on fixed assets and increased net working capital by $38. What is the amount of the cash flow to stockholders?

Accepted Answer

A)  -$104 
B)  -$28 
C)  $28 
D)  $114 
E)  $142 
A)  -$104 
B)  -$28 
C)  $28 
D)  $114 
E)  $142

Question 11

Note that we added depreciation back to operating cash flow and to additions to fixed assets. Why add it back twice?
 Isn't this double-counting?

Accepted Answer

In both cases,depreciation is added back

Question 12

An increase in total assets:

Accepted Answer

A)  means that net working capital is also increasing. 
B)  requires an investment in fixed assets. 
C)  means that shareholders' equity must also increase. 
D)  must be offset by an equal increase in liabilities and shareholders' equity. 
E)  can only occur when a firm has positive net incomE. 
A)  means that net working capital is also increasing. 
B)  requires an investment in fixed assets. 
C)  means that shareholders' equity must also increase. 
D)  must be offset by an equal increase in liabilities and shareholders' equity. 
E)  can only occur when a firm has positive net incomE.

Question 13

Which of the following statements concerning the income statement is true?

Accepted Answer

A)  It measures performance over a specific period of time. 
B)  It determines after-tax income of the firm. 
C)  It includes deferred taxes. 
D)  It treats interest as an expense. 
E)  All of 
A)  It measures performance over a specific period of time. 
B)  It determines after-tax income of the firm. 
C)  It includes deferred taxes. 
D)  It treats interest as an expense. 
E)  All of

Question 14

Explain why the income statement is not a good representation of cash flow.

Accepted Answer

Most income statements contain some nonc

Question 15

The tax rates are as shown. Your firm currently has taxable income of $79,400. How much additional tax will you owe if you increase your taxable income by $21,000?

Accepted Answer

A)  $7,004 
B)  $7,014 
C)  $7,140 
D)  $7,160 
E)  $7,174 
A)  $7,004 
B)  $7,014 
C)  $7,140 
D)  $7,160 
E)  $7,174

Question 16

Cash flow to stockholders is defined as:

Accepted Answer

A)  interest payments. 
B)  repurchases of equity less cash dividends paid plus new equity sold. 
C)  cash flow from financing less cash flow to creditors. 
D)  cash dividends plus repurchases of equity minus new equity financing. 
E)  None of these. 
A)  interest payments. 
B)  repurchases of equity less cash dividends paid plus new equity sold. 
C)  cash flow from financing less cash flow to creditors. 
D)  cash dividends plus repurchases of equity minus new equity financing. 
E)  None of these.

Question 17

Mart's Boutique has sales of $670,000 and costs of $460,000. Interest expense is $50,000 and depreciation is $55,000. The tax rate is 34%. What is the net income?

Accepted Answer

A)  $35,700 
B)  $69,300 
C)  $105,000 
D)  $138,600 
E)  $210,000 
A)  $35,700 
B)  $69,300 
C)  $105,000 
D)  $138,600 
E)  $210,000

Question 18

What is net new borrowing for 2011?

Accepted Answer

A)  -$70 
B)  -$35 
C)  $35 
D)  $70 
E)  $105 
A)  -$70 
B)  -$35 
C)  $35 
D)  $70 
E)  $105

Question 19

What is net capital spending for 2011?

Accepted Answer

A)  -$250 
B)  -$57 
C)  $0 
D)  $57 
E)  $477 
A)  -$250 
B)  -$57 
C)  $0 
D)  $57 
E)  $477

Question 20

What is the cash flow of the firm for 2011?

Accepted Answer

A)  $430 
B)  $485 
C)  $1,340 
D)  $2,590 
E)  $3,100 
A)  $430 
B)  $485 
C)  $1,340 
D)  $2,590 
E)  $3,100

Exam 2: Financial Statements and Cash Flow

Discuss the difference between book values and market values on the balance sheet and explain which is more important to the financial manager and why.

When making financial decisions related to assets,you should:

One of the reasons why cash flow analysis is popular is because:

_____ refers to the firm's interest payments less any net new borrowing.

A firm has $450 in inventory,$700 in fixed assets,$210 in accounts receivable,$50 in accounts payable,and $60 in cash. What is the amount of the current assets?

Which one of the following assets is generally the most liquid?

What is the amount of the net capital spending for 2011?

Note that in all of our cash flow computations to determine cash flow of the firm,we never include the addition to retained earnings. Why not? Is this an oversight?

What is the cash flow to creditors for 2011?

Thompson's Jet Skis has operating cash flow of $218. Depreciation is $45 and interest paid is $35. A net total of $69 was paid on long-term debt. The firm spent $180 on fixed assets and increased net working capital by $38. What is the amount of the cash flow to stockholders?

Note that we added depreciation back to operating cash flow and to additions to fixed assets. Why add it back twice? Isn't this double-counting?

An increase in total assets:

Which of the following statements concerning the income statement is true?

Explain why the income statement is not a good representation of cash flow.

The tax rates are as shown. Your firm currently has taxable income of $79,400. How much additional tax will you owe if you increase your taxable income by $21,000?

Cash flow to stockholders is defined as:

Mart's Boutique has sales of $670,000 and costs of $460,000. Interest expense is $50,000 and depreciation is $55,000. The tax rate is 34%. What is the net income?

What is net new borrowing for 2011?

What is net capital spending for 2011?

What is the cash flow of the firm for 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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