Question 1

Which of the following forms of income can individuals defer from taxation?

Accepted Answer

A)  Dividends 
B)  Interest 
C)  Realized capital gains 
D) Unrealized capital gains 
A)  Dividends 
B)  Interest 
C)  Realized capital gains 
D) Unrealized capital gains

Question 2

An individual's income for the year includes both dividend and interest payments. Which of these statements correctly applies to that individual's tax liability?

Accepted Answer

A)  Dividends are taxed; tax on interest payments is paid at the corporate level. 
B)  Interest is taxed; tax on dividend payments is paid at the corporate level. 
C)  Both dividend and interest payments are taxed at the personal level. 
D) All taxes on dividend and interest payments are paid at the corporate level. 
A)  Dividends are taxed; tax on interest payments is paid at the corporate level. 
B)  Interest is taxed; tax on dividend payments is paid at the corporate level. 
C)  Both dividend and interest payments are taxed at the personal level. 
D) All taxes on dividend and interest payments are paid at the corporate level.

Question 3

Which of the following values would most likely interest a shareholder?

Accepted Answer

A)  Book value of equity 
B)  Market value of equity 
C)  Retained earnings 
D) Net working capital 
A)  Book value of equity 
B)  Market value of equity 
C)  Retained earnings 
D) Net working capital

Question 4

Which type of income is subject to "double taxation"?

Accepted Answer

A)  Dividends and wages 
B)  Capital gains 
C)  Dividends 
D) Wages 
A)  Dividends and wages 
B)  Capital gains 
C)  Dividends 
D) Wages

Question 5

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

Accepted Answer

A)  Investors anticipate excellent earning potential. 
B)  Investors anticipate low earning potential. 
C)  Assets have been fully depreciated. 
D) The company is bankrupt. 
A)  Investors anticipate excellent earning potential. 
B)  Investors anticipate low earning potential. 
C)  Assets have been fully depreciated. 
D) The company is bankrupt.

Question 6

You are the sole shareholder of Taylor's. Assume you pay personal taxes as a single taxpayer and the tax rates are as shown here:

Accepted Answer

@#IMG-DLM& a) If you take an annual salary of $60,

Question 7

The purchase of new equipment is a use of cash, and it reduces the firm's net cash balance.

Accepted Answer

A) True 
 B)False

Question 8

Why might it be difficult to rely on profits to get an overall impression of the firm's cash flows?

Accepted Answer

Two important differences exist between

Question 9

Interest expense appears in the operations section of the statement of cash flows because:

Accepted Answer

A)  firms cannot operate without incurring interest expense. 
B)  its payment is not within managerial discretion. 
C)  it is paid to finance a firm's inventory. 
D) none of these; interest expense appears in the financing section of the statement of cash flows. 
A)  firms cannot operate without incurring interest expense. 
B)  its payment is not within managerial discretion. 
C)  it is paid to finance a firm's inventory. 
D) none of these; interest expense appears in the financing section of the statement of cash flows.

Question 10

Fixed assets can be either tangible or intangible.

Accepted Answer

A) True 
 B)False

Question 11

Book values are "forward-looking" measures of value.

Accepted Answer

A) True 
 B)False

Question 12

The difference between the market values of assets and liabilities is the market value of the shareholders' equity claim.

Accepted Answer

A) True 
 B)False

Question 13

In a statement of cash flows, which category includes depreciation expense as a line item?

Accepted Answer

A)  Operations 
B)  Investments 
C)  Financing 
D) None of these; depreciation is a noncash expense. 
A)  Operations 
B)  Investments 
C)  Financing 
D) None of these; depreciation is a noncash expense.

Question 14

You have gathered this information on a firm: $500,000 sales, $10,000 cash dividends, $300,000 cost of goods sold, $20,000 administrative expense, $20,000 depreciation expense, $40,000 interest expense, $10,000 purchase of productive equipment, no changes in working capital, and a tax rate of 35%. What is the free cash flow?

Accepted Answer

A)  $141,000 
B)  $168,000 
C)  $128,000 
D) $142,000 
A)  $141,000 
B)  $168,000 
C)  $128,000 
D) $142,000

Question 15

Assuming at the $50,000 income level that the corporate tax rate increases from 15 to 25%, which of the following statements is correct for a firm with $75,000 of taxable income?

Accepted Answer

A)  Its marginal tax rate is 15%. 
B)  Its average tax rate is 25%. 
C)  Its marginal tax rate is 18.33%. 
D) Its average tax rate is 18.33%. 
A)  Its marginal tax rate is 15%. 
B)  Its average tax rate is 25%. 
C)  Its marginal tax rate is 18.33%. 
D) Its average tax rate is 18.33%.

Question 16

Which of the following statements about net working capital (NWC) is correct?

Accepted Answer

A)  NWC is positive for all firms. 
B)  As NWC decreases, potential liquidity increases. 
C)  NWC excludes inventory, which is deemed illiquid. 
D) Decreases in NWC can increase the firm's risk. 
A)  NWC is positive for all firms. 
B)  As NWC decreases, potential liquidity increases. 
C)  NWC excludes inventory, which is deemed illiquid. 
D) Decreases in NWC can increase the firm's risk.

Question 17

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:

Accepted Answer

A)  book value of the asset. 
B)  market value of the asset. 
C)  depreciation expense. 
D) current asset value. 
A)  book value of the asset. 
B)  market value of the asset. 
C)  depreciation expense. 
D) current asset value.

Question 18

Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?

Accepted Answer

A)  Cash dividends 
B)  Depreciation expense 
C)  Interest expense 
D) Tax liability 
A)  Cash dividends 
B)  Depreciation expense 
C)  Interest expense 
D) Tax liability

Question 19

Which one of the following statements is correct for a corporation with a negative net income in both the present and the last fiscal year?

Accepted Answer

A)  This year's loss can be carried back, but last year's loss cannot be used. 
B)  Neither of the losses can be used to reduce taxes. 
C)  Both losses can be carried forward but not backward. 
D) Both losses can be carried forward and backward, within certain time limits. 
A)  This year's loss can be carried back, but last year's loss cannot be used. 
B)  Neither of the losses can be used to reduce taxes. 
C)  Both losses can be carried forward but not backward. 
D) Both losses can be carried forward and backward, within certain time limits.

Question 20

What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing?

Accepted Answer

A)  The firm has low depreciation expense. 
B)  The firm did not pay any dividends. 
C)  The firm sold more equipment than it purchased. 
D) The firm has a low interest rate on its debt. 
A)  The firm has low depreciation expense. 
B)  The firm did not pay any dividends. 
C)  The firm sold more equipment than it purchased. 
D) The firm has a low interest rate on its debt.

Exam 3: Accounting and Finance

Which of the following forms of income can individuals defer from taxation?

An individual's income for the year includes both dividend and interest payments. Which of these statements correctly applies to that individual's tax liability?

Which of the following values would most likely interest a shareholder?

Which type of income is subject to "double taxation"?

Which of the following is more likely to be correct if market value of equity is less than book value of equity?

You are the sole shareholder of Taylor's. Assume you pay personal taxes as a single taxpayer and the tax rates are as shown here:

The purchase of new equipment is a use of cash, and it reduces the firm's net cash balance.

Why might it be difficult to rely on profits to get an overall impression of the firm's cash flows?

Interest expense appears in the operations section of the statement of cash flows because:

Fixed assets can be either tangible or intangible.

Book values are "forward-looking" measures of value.

The difference between the market values of assets and liabilities is the market value of the shareholders' equity claim.

In a statement of cash flows, which category includes depreciation expense as a line item?

Assuming at the $50,000 income level that the corporate tax rate increases from 15 to 25%, which of the following statements is correct for a firm with $75,000 of taxable income?

Which of the following statements about net working capital (NWC) is correct?

When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:

Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?

Which one of the following statements is correct for a corporation with a negative net income in both the present and the last fiscal year?

What is the most likely conclusion for a firm whose statement of cash flows shows an increase in cash balances and has negative cash flows from both operations and financing?

Goals and Governance of the Corporation

Financial Markets and Institutions

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters