Question 1

The book value of a firm is:

Accepted Answer

A) equivalent to the firm's market value provided that the firm has some fixed assets. 
B) based on historical cost. 
C) generally greater than the market value when fixed assets are included. 
D) more of a financial than an accounting valuation. 
E) adjusted to the market value whenever the market value exceeds the stated book value. 
A) equivalent to the firm's market value provided that the firm has some fixed assets. 
B) based on historical cost. 
C) generally greater than the market value when fixed assets are included. 
D) more of a financial than an accounting valuation. 
E) adjusted to the market value whenever the market value exceeds the stated book value.

Question 2

Which one of the following is NOT included in cash flow from assets?

Accepted Answer

A) accounts payable 
B) inventory 
C) sales 
D) interest expense 
E) cash account 
A) accounts payable 
B) inventory 
C) sales 
D) interest expense 
E) cash account

Question 3

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 4

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense.The addition to retained earnings is $418 and net new equity is $500.The tax rate is 35 percent.Sales are $15,900 and depreciation is $680.What are the earnings before interest and taxes?

Accepted Answer

A) $589.46 
B) $1,269.46 
C) $1,331.54 
D) $1,951.54 
E) $1,949.46 
A) $589.46 
B) $1,269.46 
C) $1,331.54 
D) $1,951.54 
E) $1,949.46

Question 5

Which term relates to the cash flow which results from a firm'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 6

Which one of the following statements related to an income statement is correct?

Accepted Answer

A) Interest expense increases the amount of tax due. 
B) Depreciation does not affect taxes since it is a non-cash expense. 
C) Net income is distributed to dividends and paid-in surplus. 
D) Taxes reduce both net income and operating cash flow. 
E) Interest expense is included in operating cash flow. 
A) Interest expense increases the amount of tax due. 
B) Depreciation does not affect taxes since it is a non-cash expense. 
C) Net income is distributed to dividends and paid-in surplus. 
D) Taxes reduce both net income and operating cash flow. 
E) Interest expense is included in operating cash flow.

Question 7

Which one of the following statements concerning net working capital is correct?

Accepted Answer

A) The lower the value of net working capital the greater the ability of a firm to meet its current obligations. 
B) An increase in net working capital must also increase current assets. 
C) Net working capital increases when inventory is sold for cash at a profit. 
D) Firms with equal amounts of net working capital are also equally liquid. 
E) Net working capital is a part of the operating cash flow. 
A) The lower the value of net working capital the greater the ability of a firm to meet its current obligations. 
B) An increase in net working capital must also increase current assets. 
C) Net working capital increases when inventory is sold for cash at a profit. 
D) Firms with equal amounts of net working capital are also equally liquid. 
E) Net working capital is a part of the operating cash flow.

Question 8

The common set of standards and procedures by which audited financial statements are prepared is known as the:

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 9

Boyer Enterprises had $200,000 in 2011 taxable income.What is the firm's average tax rate based on the rates shown in the following table?

Accepted Answer

A) 28.25 percent 
B) 30.63 percent 
C) 32.48 percent 
D) 36.50 percent 
E) 39.00 percent 
A) 28.25 percent 
B) 30.63 percent 
C) 32.48 percent 
D) 36.50 percent 
E) 39.00 percent

Question 10

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

Accepted Answer

A) The addition to retained earnings is equal to net income plus dividends paid. 
B) Credit sales are recorded on the income statement when the cash from the sale is collected. 
C) The labor costs for producing a product are expensed when the product is sold. 
D) Interest is a non-cash expense. 
E) Depreciation increases the marginal tax rate. 
A) The addition to retained earnings is equal to net income plus dividends paid. 
B) Credit sales are recorded on the income statement when the cash from the sale is collected. 
C) The labor costs for producing a product are expensed when the product is sold. 
D) Interest is a non-cash expense. 
E) Depreciation increases the marginal tax rate.

Question 11

As long as a firm maintains a positive cash balance,why is it essential to review the firm's cash flows?

Accepted Answer

Firms can have positive cash balances be

Question 12

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 13

A firm has common stock of $6,200,paid-in surplus of $9,100,total liabilities of $8,400,current assets of $5,900,and fixed assets of $21,200.What is the amount of the shareholders' equity?

Accepted Answer

A) $6,900 
B) $15,300 
C) $18,700 
D) $23,700 
E) $35,500 
A) $6,900 
B) $15,300 
C) $18,700 
D) $23,700 
E) $35,500

Question 14

Webster World has sales of $12,900,costs of $5,800,depreciation expense of $1,100,and interest expense of $700.What is the operating cash flow if the tax rate is 32 percent?

Accepted Answer

A) $4,704 
B) $5,749 
C) $5,404 
D) $7,036 
E) $7,100 
A) $4,704 
B) $5,749 
C) $5,404 
D) $7,036 
E) $7,100

Question 15

Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

Accepted Answer

A) Net income minus dividends paid will equal the ending retained earnings for the year. 
B) An increase in depreciation will increase the operating cash flow. 
C) Net income divided by the number of shares outstanding will equal the dividends per share. 
D) Interest paid will be included in both net income and operating cash flow. 
E) An increase in the tax rate will increase both net income and operating cash flow. 
A) Net income minus dividends paid will equal the ending retained earnings for the year. 
B) An increase in depreciation will increase the operating cash flow. 
C) Net income divided by the number of shares outstanding will equal the dividends per share. 
D) Interest paid will be included in both net income and operating cash flow. 
E) An increase in the tax rate will increase both net income and operating cash flow.

Question 16

Shareholders' equity:

Accepted Answer

A) increases in value anytime total assets increases. 
B) is equal to total assets plus total liabilities. 
C) decreases whenever new shares of stock are issued. 
D) includes long-term debt, preferred stock, and common stock. 
E) represents the residual value of a firm. 
A) increases in value anytime total assets increases. 
B) is equal to total assets plus total liabilities. 
C) decreases whenever new shares of stock are issued. 
D) includes long-term debt, preferred stock, and common stock. 
E) represents the residual value of a firm.

Question 17

Assume you are a credit manager in charge of approving commercial loans to business firms.Identify three aspects of a firm's cash flows you would review and explain the type of information you hope to gain from reviewing each of those five aspects.

Accepted Answer

Student answers will vary but here are s

Question 18

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 19

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

Accepted Answer

The accounts on the balance sheet are ge

Question 20

Assume you are the financial officer of a major firm.The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little,if any,return to the firm.How would you respond to this statement?

Accepted Answer

While it is true that current assets pro

Exam 2: Financial Statements, Taxes, and Cash Flow

The book value of a firm is:

Which one of the following is NOT included in cash flow from assets?

Net working capital is defined as:

Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense.The addition to retained earnings is $418 and net new equity is $500.The tax rate is 35 percent.Sales are $15,900 and depreciation is $680.What are the earnings before interest and taxes?

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

Which one of the following statements related to an income statement is correct?

Which one of the following statements concerning net working capital is correct?

The common set of standards and procedures by which audited financial statements are prepared is known as the:

Boyer Enterprises had $200,000 in 2011 taxable income.What is the firm's average tax rate based on the rates shown in the following table?

Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.

As long as a firm maintains a positive cash balance,why is it essential to review the firm's cash flows?

Net capital spending:

A firm has common stock of $6,200,paid-in surplus of $9,100,total liabilities of $8,400,current assets of $5,900,and fixed assets of $21,200.What is the amount of the shareholders' equity?

Webster World has sales of $12,900,costs of $5,800,depreciation expense of $1,100,and interest expense of $700.What is the operating cash flow if the tax rate is 32 percent?

Which one of the following statements is correct concerning a corporation with taxable income of $125,000?

Shareholders' equity:

Assume you are a credit manager in charge of approving commercial loans to business firms.Identify three aspects of a firm's cash flows you would review and explain the type of information you hope to gain from reviewing each of those five aspects.

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

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

Assume you are the financial officer of a major firm.The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little,if any,return to the firm.How would you respond to this statement?

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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