Question 1

Which of the following statements is CORRECT?

Accepted Answer

A) MVA stands for market value added, and it is defined as follows:MVA = (Shares outstanding)(Stock price) + Book value of common equity. 
B) 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. 
C) MVA gives us an idea about how much value a firm's management has added during the last year. 
D) EVA gives us an idea about how much value a firm's management has added over the firm's life. 
E) EVA stands for economic value added, and it is defined as follows:EVA = NOPAT − (Total invested capital)(AT cost of capital %) 
A) MVA stands for market value added, and it is defined as follows:MVA = (Shares outstanding)(Stock price) + Book value of common equity. 
B) 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. 
C) MVA gives us an idea about how much value a firm's management has added during the last year. 
D) EVA gives us an idea about how much value a firm's management has added over the firm's life. 
E) EVA stands for economic value added, and it is defined as follows:EVA = NOPAT − (Total invested capital)(AT cost of capital %)

Question 2

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share.If the company has $40 million of common equity on its balance sheet,what is the company's Market Value Added (MVA)?

Accepted Answer

A) −$5,415,000 
B) −$5,700,000 
C) −$6,000,000 
D) −$6,300,000 
E) −$6,615,000 
A) −$5,415,000 
B) −$5,700,000 
C) −$6,000,000 
D) −$6,300,000 
E) −$6,615,000

Question 3

The amount shown on the December 31,2015,balance sheet as "retained earnings" is equal to the firm's net income for 2015 minus any dividends it paid.

Accepted Answer

A) True 
 B)False

Question 4

EBITDA stands for earnings before interest,taxes,debt,and assets.

Accepted Answer

A) True 
 B)False

Question 5

For 2014,Bargain Basement Stores reported $11,500 of sales and $5,000 of operating costs (including depreciation).The company has $20,500 of total invested capital,the weighted average cost of that capital (the WACC)was 10%,and the federal-plus-state income tax rate was 40%.What was the firm's Economic Value Added (EVA),i.e.,how much value did management add to stockholders' wealth during 2014?

Accepted Answer

A) $1,670 
B) $1,758 
C) $1,850 
D) $1,943 
E) $2,040 
A) $1,670 
B) $1,758 
C) $1,850 
D) $1,943 
E) $2,040

Question 6

Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to encourage the use of debt financing by corporations.

Accepted Answer

A) True 
 B)False

Question 7

Below is the common equity section (in millions)of Timeless Technology's last two year-end balance sheets:
​
  The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Accepted Answer

A) The company's net income in 2014 was higher than in 2013. 
B) The firm issued common stock in 2014. 
C) The market price of the firm's stock doubled in 2014. 
D) The firm had positive net income in both 2013 and 2014, but its net income in 2014 was lower than it was in 2013. 
E) The company has more equity than debt on its balance sheet. 
A) The company's net income in 2014 was higher than in 2013. 
B) The firm issued common stock in 2014. 
C) The market price of the firm's stock doubled in 2014. 
D) The firm had positive net income in both 2013 and 2014, but its net income in 2014 was lower than it was in 2013. 
E) The company has more equity than debt on its balance sheet.

Question 8

Brown Office Supplies recently reported $15,500 of sales,$8,250 of operating costs other than depreciation,and $1,750 of depreciation.It had $9,000 of bonds outstanding that carry a 7.0% interest rate,and its federal-plus-state income tax rate was 40%.How much was the firm's earnings before taxes (EBT)?

Accepted Answer

A) $4,627 
B) $4,870 
C) $5,114 
D) $5,369 
E) $5,638 
A) $4,627 
B) $4,870 
C) $5,114 
D) $5,369 
E) $5,638

Question 9

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

Accepted Answer

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

Question 10

The Nantell Corporation just purchased an expensive piece of equipment.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis,but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant,which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Accepted Answer

A) Nantell's taxable income will be lower. 
B) Nantell's operating income (EBIT) will increase. 
C) Nantell's cash position will improve (increase). 
D) Nantell's reported net income for the year will be lower. 
E) Nantell's tax liability for the year will be lower. 
A) Nantell's taxable income will be lower. 
B) Nantell's operating income (EBIT) will increase. 
C) Nantell's cash position will improve (increase). 
D) Nantell's reported net income for the year will be lower. 
E) Nantell's tax liability for the year will be lower.

Which of the following statements is CORRECT?

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share.If the company has $40 million of common equity on its balance sheet,what is the company's Market Value Added (MVA)?

The amount shown on the December 31,2015,balance sheet as "retained earnings" is equal to the firm's net income for 2015 minus any dividends it paid.

EBITDA stands for earnings before interest,taxes,debt,and assets.

Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to encourage the use of debt financing by corporations.

Below is the common equity section (in millions)of Timeless Technology's last two year-end balance sheets: The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

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

An Overview of Financial Management

Financial Markets and Institutions

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock, leasing, warrants, and Convertibles

Mergers and Acquisitions

Continuous Compounding and Discounting

Zero Coupon Bonds

Bankruptcy and Reorganization

Calculating Beta Coefficients

Using the Capm to Estimate the Risk-Adjusted Cost of Capital

Techniques for Measuring Beta Risk

Degree of Leverage

Filters

Exam 3: Financial Statements, cash Flow, and Taxes

Which of the following statements is CORRECT?

Byrd Lumber has 2 million shares of common stock outstanding that sell for $17 a share.If the company has $40 million of common equity on its balance sheet,what is the company's Market Value Added (MVA)?

The amount shown on the December 31,2015,balance sheet as "retained earnings" is equal to the firm's net income for 2015 minus any dividends it paid.

EBITDA stands for earnings before interest,taxes,debt,and assets.

Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to encourage the use of debt financing by corporations.

Below is the common equity section (in millions)of Timeless Technology's last two year-end balance sheets: ​ The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

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

An Overview of Financial Management

Financial Markets and Institutions

Analysis of Financial Statements

Time Value of Money

Interest Rates

Bonds and Their Valuation

Risk and Rates of Return

Stocks and Their Valuation

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Real Options and Other Topics in Capital Budgeting

Capital Structure and Leverage

Distributions to Shareholders: Dividends and Share Repurchases

Working Capital Management

Financial Planning and Forecasting

Derivatives and Risk Management

Multinational Financial Management

Hybrid Financing: Preferred Stock, leasing, warrants, and Convertibles

Mergers and Acquisitions

Continuous Compounding and Discounting

Zero Coupon Bonds

Bankruptcy and Reorganization

Calculating Beta Coefficients

Using the Capm to Estimate the Risk-Adjusted Cost of Capital

Techniques for Measuring Beta Risk

Degree of Leverage

Filters

Below is the common equity section (in millions)of Timeless Technology's last two year-end balance sheets: The firm has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?