Exam 3: Financial Statements, cash Flow, and Taxes

Casey Motors recently reported the following information: ∙Net income = $600,000. ∙Tax rate = 40%. ∙Interest expense = $200,000. ∙Total invested operating capital employed = $9 million. ∙After-tax cost of capital = 10%. What is the company's EVA?

The statement of cash flows has four main sections,one each for operating,investing,and financing activities,and one that shows a summary of the cash and cash equivalents at the end of the year.

Below are the 2013 and 2014 year-end balance sheets for Tran Enterprises: ​ The firm has never paid a dividend on its common stock,and it issued $2,400,000 of 10-year,non-callable,long-term debt in 2013.As of the end of 2014,none of the principal on this debt had been repaid.Assume that the company's sales in 2013 and 2014 were the same.Which of the following statements must be CORRECT?

Appalachian Airlines began operating in 2010.The company lost money the first year but has been profitable ever since.The company's taxable income (EBT)for its first five years is listed below.Each year the company's corporate tax rate has been 40%. Assume that the company has taken full advantage of the Tax Code's carry-back,carry-forward provisions and that the current provisions were applicable in 2010.How much did the company pay in taxes in 2013?

Free cash flow (FCF)is,essentially,the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.

Which of the following statements is CORRECT?

A corporation recently purchased some preferred stock that has a before-tax yield of 7%.The company has a tax rate of 38%.What is the after-tax return on the preferred stock?

EBIT stands for earnings before interest and taxes,and it is often called "operating income."

The first major section of a typical statement of cash flows is "Operating Activities," and the first entry in this section is "Net Income." Then,also in the first section,we show some items that represent increases or decreases to cash,and the last entry is called "Net Cash Provided by Operating Activities." This number can be either positive or negative,but if it is negative,the firm is almost certain to soon go bankrupt.

Rao Construction recently reported $20.50 million of sales,$12.60 million of operating costs other than depreciation,and $3.00 million of depreciation.It had $8.50 million of bonds outstanding that carry a 7.0% interest rate,and its federal-plus-state income tax rate was 40%.What was Rao's operating income,or EBIT,in millions?

Mays Industries was established in 2009.Since its inception,the company has generated the following levels of taxable income (EBT): Assume that each year the company has faced a 40% income tax rate.Also,assume that the company has taken full advantage of the Tax Code's carry-back,carry-forward provisions,and assume that the current provisions were applicable in 2008.What is the company's tax liability for 2014?

The annual report contains four basic financial statements: the income statement,the balance sheet,the cash flow statement,and statement of stockholders' equity.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Collins Co.began operations in 2011.The company lost money the first two years,but has been profitable ever since.The company's taxable income (EBT)for its first four years is summarized below: The corporate tax rate has remained at 34%.Assume that the company has taken full advantage of the Tax Code's carry-back,carry-forward provisions,and assume that the current provisions were applicable in 2011.What is Collins' tax liability for 2014?

Griffey Communications recently realized $125,000 in operating income.The company had interest income of $25,000 and realized $70,000 in dividend income.The company's interest expense was $40,000. Using the corporate tax schedule above,what is Griffey's tax liability?

To estimate the cash flow from operations,depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue in the net income calculation.

Last year,Martyn Company had $500,000 in taxable income from its operations,$50,000 in interest income,and $100,000 in dividend income.Using the corporate tax rate table given below,what was the company's tax liability for the year?

Assume that two firms are both following generally accepted accounting principles.Both firms commenced operations two years ago with $1 million of identical fixed assets,and neither firm sold any of those assets or purchased any new fixed assets.The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.

Which of the following would be most likely to occur in the year after Congress,in an effort to increase tax revenue,passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales,other operating costs,and tax rates are not affected,and assume that the same depreciation method is used for tax and stockholder reporting purposes.