Exam 3: Financial Statements, cash Flow, and Taxes

Brown Fashions Inc.'s December 31,2014,balance sheet showed total common equity of $4,050,000 and 200,000 shares of stock outstanding.During 2014,the firm had $450,000 of net income,and it paid out $100,000 as dividends.What was the book value per share at 12/31/14,assuming no common stock was either issued or retired during 2014?

Carter Corporation has some money to invest,and its treasurer is choosing between City of Chicago municipal bonds and U.S.Treasury bonds.Both have the same maturity,and they are equally risky and liquid.If Treasury bonds yield 6%,and Carter's marginal income tax rate is 40%,what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?

Salinger Software was founded in 2011.The company lost money each of its first three years,but was able to turn a profit in 2014.Salinger's operating income (EBIT)for its first four years of operations is reported below. The company has no debt,so operating income equals earnings before taxes.The corporate tax rate has remained constant at 35%.Assume that the company took full advantage of the carry-back,carry-forward provisions in the Tax Code,and assume that the current provisions were applicable in 2011.How much tax did the company pay in 2014?

The balance sheet 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.

Moose Industries faces the following tax schedule: Last year the company realized $10,000,000 in operating income (EBIT).Its annual interest expense is $1,500,000.What was the company's net income for the year?

Assume that Besley Golf Equipment commenced operations on January 1,2014,and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes.The company planned to depreciate its fixed assets over 15 years,but in December 2014 management realized that the assets would last for only 10 years.The firm's accountants plan to report the 2014 financial statements based on this new information.How would the new depreciation assumption affect the company's financial statements?

If we were describing the income statement and the balance sheet,it would be correct to say that the income statement is more like a video while the balance sheet is more like a snapshot.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

For managerial purposes,i.e.,making decisions regarding the firm's operations,the standard financial statements as prepared by accountants under generally accepted accounting principles (GAAP)are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations.Related to these modifications,which of the following statements is CORRECT?

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 specific changes in accounts over that period of time.

Arvo Corporation is trying to choose between three alternative investments.The three securities that the company is considering are as follows: ∙Tax-free municipal bonds with a return of 8.8%. ∙Wooli Corporation bonds with a return of 11.75%. ∙CFI Corp.preferred stock with a return of 9.8%. The company's tax rate is 25%.What is the after-tax return on the best investment alternative?

Last year,Stewart-Stern Inc.reported $11,250 of sales,$4,500 of operating costs other than depreciation,and $1,250 of depreciation.The company had $3,500 of bonds outstanding that carry a 6.5% interest rate,and its federal-plus-state income tax rate was 35%.During last year,the firm had expenditures on fixed assets and net operating working capital that totaled $2,000.These expenditures were necessary for it to sustain operations and generate future sales and cash flows.This year's data are expected to remain unchanged except for one item,depreciation,which is expected to increase by $725.By how much will the depreciation change cause (1)the firm's net income and (2)its free cash flow to change? Note that the company uses the same depreciation for tax and stockholder reporting purposes.

Watson Oil recently reported (in millions)$8,250 of sales,$5,750 of operating costs other than depreciation,and $650 of depreciation.The company had $3,200 of outstanding bonds that carry a 5% interest rate,and its federal-plus-state income tax rate was 35%.In order to sustain its operations and thus generate future sales and cash flows,the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital.By how much did the firm's net income exceed its free cash flow?

West Corporation has $50,000 that it plans to invest in marketable securities.The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 8.5%; Exxon Mobil bonds yielding 10.5%; and GM preferred stock with a dividend yield of 9.25%.West's corporate tax rate is 35%.What is the after-tax return on the best investment alternative? (Assume the company chooses on the basis of after-tax returns.)

Which of the following statements is most correct?

Bradshaw Beverages began operations in 2010.The table below contains the company's taxable income during each year of its operations.Notice that the company lost money in each of its first three years.The corporate tax rate has been 40% each year. 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 2010.How much did the company pay in taxes during 2014?

Which of the following statements is CORRECT?

Companies typically provide four basic financial statements: the fixed income statement,the current income statement,the balance sheet,and the cash flow statement.

Which of the following statements is CORRECT?