Question 1

Which of the following statements is CORRECT?

Accepted Answer

A) The maximum federal tax rate on personal income in 2014 was 50%. 
B) Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible. 
C) Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2014 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. 
D) The maximum federal tax rate on corporate income in 2014 was 50%. 
E) Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes. 
A) The maximum federal tax rate on personal income in 2014 was 50%. 
B) Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible. 
C) Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2014 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. 
D) The maximum federal tax rate on corporate income in 2014 was 50%. 
E) Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes. C

Question 2

Consider the balance sheet of Wilkes Industries as shown below.Because Wilkes has $800,000 of retained earnings,the company would be able to pay cash to buy an asset with a cost of $200,000.

Accepted Answer

A) True 
 B)False  False

Question 3

Below are the year-end balance sheets for Wolken Enterprises:   Wolken has never paid a dividend on its common stock,and it issued $2,400,000 of 10-year non-callable,long-term debt in 2014.As of the end of 2015,none of the principal on this debt had been repaid.Assume that the company's sales in 2014 and 2015 were the same.Which of the following statements must be CORRECT?

Accepted Answer

A) Wolken increased its short-term bank debt in 2015. 
B) Wolken issued long-term debt in 2015. 
C) Wolken issued new common stock in 2015. 
D) Wolken repurchased some common stock in 2015. 
E) Wolken had negative net income in 2015. 
A) Wolken increased its short-term bank debt in 2015. 
B) Wolken issued long-term debt in 2015. 
C) Wolken issued new common stock in 2015. 
D) Wolken repurchased some common stock in 2015. 
E) Wolken had negative net income in 2015. C

Question 4

Danielle's Sushi Shop last year had (1)a negative net cash flow from operations, (2)a negative free cash flow,and (3)an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

Accepted Answer

A) The company had a sharp increase in its depreciation and amortization expenses. 
B) The company had a sharp increase in its inventories. 
C) The company had a sharp increase in its accrued liabilities. 
D) The company sold a new issue of common stock. 
E) The company made a large capital investment early in the year. 
A) The company had a sharp increase in its depreciation and amortization expenses. 
B) The company had a sharp increase in its inventories. 
C) The company had a sharp increase in its accrued liabilities. 
D) The company sold a new issue of common stock. 
E) The company made a large capital investment early in the year.

Question 5

Last year Tiemann Technologies reported $10,500 of sales,$6,250 of operating costs other than depreciation,and $1,300 of depreciation.The company had no amortization charges,it had $5,000 of bonds that carry a 6.5% interest rate,and its federal-plus-state income tax rate was 35%.This year's data are expected to remain unchanged except for one item,depreciation,which is expected to increase by $750.By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.

Accepted Answer

A) −463.13 
B) −487.50 
C) −511.88 
D) −537.47 
E) −564.34 
A) −463.13 
B) −487.50 
C) −511.88 
D) −537.47 
E) −564.34

Question 6

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time,while the income statement measures the firm's financial position at a point in time.

Accepted Answer

A) True 
 B)False

Question 7

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000.The company has 125,000 shares of stock outstanding,and they sell at a price of $52.50 per share.By how much do the firm's market and book values per share differ?

Accepted Answer

A) $27.50 
B) $28.88 
C) $30.32 
D) $31.83 
E) $33.43 
A) $27.50 
B) $28.88 
C) $30.32 
D) $31.83 
E) $33.43

Question 8

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Accepted Answer

A) Accrued payroll taxes. 
B) Accounts payable. 
C) Short-term notes payable to the bank. 
D) Accrued wages. 
E) Cost of goods sold. 
A) Accrued payroll taxes. 
B) Accounts payable. 
C) Short-term notes payable to the bank. 
D) Accrued wages. 
E) Cost of goods sold.

Question 9

Net operating profit after taxes (NOPAT)is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

Accepted Answer

A) True 
 B)False

Question 10

Aubey Aircraft recently announced that its net income increased sharply from the previous year,yet its net cash flow from operations declined.Which of the following could explain this performance?

Accepted Answer

A) The company's operating income declined. 
B) The company's expenditures on fixed assets declined. 
C) The company's cost of goods sold increased. 
D) The company's depreciation and amortization expenses declined. 
E) The company's interest expense increased. 
A) The company's operating income declined. 
B) The company's expenditures on fixed assets declined. 
C) The company's cost of goods sold increased. 
D) The company's depreciation and amortization expenses declined. 
E) The company's interest expense increased.

Question 11

TSW Inc.had the following data for last year: Net income = $800; Net operating profit after taxes (NOPAT)= $700; Total assets = $3,000; and Total operating capital = $2,000.Information for the just-completed year is as follows: Net income = $1,000; Net operating profit after taxes (NOPAT)= $925; Total assets = $2,600; and Total operating capital = $2,500.How much free cash flow did the firm generate during the just-completed year?

Accepted Answer

A) $383 
B) $425 
C) $468 
D) $514 
E) $566 
A) $383 
B) $425 
C) $468 
D) $514 
E) $566

Question 12

Edwards Electronics recently reported $11,250 of sales,$5,500 of operating costs other than depreciation,and $1,250 of depreciation.The company had no amortization charges,it had $3,500 of bonds that carry a 6.25% interest rate,and its federal-plus-state income tax rate was 35%.How much was its net cash flow?

Accepted Answer

A) $3,284.75 
B) $3,457.63 
C) $3,639.61 
D) $3,831.17 
E) $4,032.81 
A) $3,284.75 
B) $3,457.63 
C) $3,639.61 
D) $3,831.17 
E) $4,032.81

Question 13

Which of the following items is NOT included in current assets?

Accepted Answer

A) Short-term, highly liquid, marketable securities. 
B) Accounts receivable. 
C) Inventory. 
D) Bonds. 
E) Cash. 
A) Short-term, highly liquid, marketable securities. 
B) Accounts receivable. 
C) Inventory. 
D) Bonds. 
E) Cash.

Question 14

Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold,which is called non-operating income.Lindley Textiles recently reported $12,500 of sales,$7,250 of operating costs other than depreciation,and $1,000 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate,and its federal-plus-state income tax rate was 40%.How much was Lindley's operating income,or EBIT?

Accepted Answer

A) $3,462 
B) $3,644 
C) $3,836 
D) $4,038 
E) $4,250 
A) $3,462 
B) $3,644 
C) $3,836 
D) $4,038 
E) $4,250

Question 15

Which of the following statements is CORRECT?

Accepted Answer

A) The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses. 
B) MVA gives us an idea about how much value a firm's management has added during the last year. 
C) MVA stands for market value added, and it is defined as follows:MVA = (Shares outstanding)(Stock price) + Book value of common equity. 
D) EVA stands for economic value added, and it is defined as follows:EVA = EBIT(1 − T) − (Investor-supplied op. capital) × (A − T cost of capital). 
E) EVA gives us an idea about how much value a firm's management has added over the firm's life. 
A) The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses. 
B) MVA gives us an idea about how much value a firm's management has added during the last year. 
C) MVA stands for market value added, and it is defined as follows:MVA = (Shares outstanding)(Stock price) + Book value of common equity. 
D) EVA stands for economic value added, and it is defined as follows:EVA = EBIT(1 − T) − (Investor-supplied op. capital) × (A − T cost of capital). 
E) EVA gives us an idea about how much value a firm's management has added over the firm's life.

Question 16

Meric Mining Inc.recently reported $15,000 of sales,$7,500 of operating costs other than depreciation,and $1,200 of depreciation.The company had no amortization charges,it had outstanding $6,500 of bonds that carry a 6.25% interest rate,and its federal-plus-state income tax rate was 35%.How much was the firm's net income after taxes? Meric uses the same depreciation expense for tax and stockholder reporting purposes.

Accepted Answer

A) $3,284.55 
B) $3,457.42 
C) $3,639.39 
D) $3,830.94 
E) $4,022.48 
A) $3,284.55 
B) $3,457.42 
C) $3,639.39 
D) $3,830.94 
E) $4,022.48

Question 17

The current cash flow from existing assets is highly relevant to the investor.However,since the value of the firm depends primarily upon its growth opportunities,profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Accepted Answer

A) True 
 B)False

Question 18

The time dimension is important in financial statement analysis.The balance sheet shows the firm's financial position at a given point in time,the income statement shows results over a period of time,and the statement of cash flows reflects changes in the firm's accounts over that period of time.

Accepted Answer

A) True 
 B)False

Question 19

EP Enterprises has the following income statement.How much net operating profit after taxes (NOPAT)does the firm have? $$\begin{array} { l r } 
\text { Sales } & \$ 1,800.00 \
\text { Costs } & 1,400.00 \
\text { Depreciation } & 250.00 \
\text { EB IT } & \$ 150.00 \
\text { Interest expense } & 70.00 \
\text { EBT } & \$ 80.00 \
\text { Taxes } ( 40 \% ) & \$ 3.00 \
\text { Net income } & \$ 48.00 \

\end{array}$$

Accepted Answer

A) $81.23 
B) $85.50 
C) $90.00 
D) $94.50 
E) $99.23 
A) $81.23 
B) $85.50 
C) $90.00 
D) $94.50 
E) $99.23

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A) The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year. 
B) The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders' equity. 
C) The balance sheet gives us a picture of the firm's financial position at a point in time. 
D) The income statement gives us a picture of the firm's financial position at a point in time. 
E) The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits. 
A) The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year. 
B) The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders' equity. 
C) The balance sheet gives us a picture of the firm's financial position at a point in time. 
D) The income statement gives us a picture of the firm's financial position at a point in time. 
E) The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.

Exam 6: Accounting for Financial Management

Which of the following statements is CORRECT?

Consider the balance sheet of Wilkes Industries as shown below.Because Wilkes has $800,000 of retained earnings,the company would be able to pay cash to buy an asset with a cost of $200,000.

Danielle's Sushi Shop last year had (1)a negative net cash flow from operations, (2)a negative free cash flow,and (3)an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time,while the income statement measures the firm's financial position at a point in time.

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000.The company has 125,000 shares of stock outstanding,and they sell at a price of $52.50 per share.By how much do the firm's market and book values per share differ?

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Net operating profit after taxes (NOPAT)is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

Aubey Aircraft recently announced that its net income increased sharply from the previous year,yet its net cash flow from operations declined.Which of the following could explain this performance?

Which of the following items is NOT included in current assets?

Which of the following statements is CORRECT?

The current cash flow from existing assets is highly relevant to the investor.However,since the value of the firm depends primarily upon its growth opportunities,profit projections from those opportunities are the only relevant future flows with which investors are concerned.

The time dimension is important in financial statement analysis.The balance sheet shows the firm's financial position at a given point in time,the income statement shows results over a period of time,and the statement of cash flows reflects changes in the firm's accounts over that period of time.

EP Enterprises has the following income statement.How much net operating profit after taxes (NOPAT)does the firm have? Sales \ 1,800.00 Costs 1,400.00 Depreciation 250.00 EB IT \ 150.00 Interest expense 70.00 EBT \ 80.00 Taxes (40\%) \ 3.00 Net income \ 48.00

Which of the following statements is CORRECT?

An Overview of Financial Management and the Financial Environment

Risk and Return: Part I

Risk and Return: Part Ii

Bond Valuation

Financial Options

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Rules

Cash Flow Estimation and Risk Analysis

Real Options

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings, investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Basic Financial Tools: a Review

Pension Plan Management

Financial Management in Not-For-Profit Businesses

a Values of the Areas Under the Standard Normal

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