Question 1

Which one of these statements is correct?

Accepted Answer

A) Pretax income is equal to net income minus taxes. 
B) The addition to retained earnings is equal to net income plus dividends. 
C) Operating income is equal to operating revenue minus cost of goods sold. 
D) Only current taxes are included in the tax expense. 
E) Earnings per share can be negative but dividends per share cannot. 
A) Pretax income is equal to net income minus taxes. 
B) The addition to retained earnings is equal to net income plus dividends. 
C) Operating income is equal to operating revenue minus cost of goods sold. 
D) Only current taxes are included in the tax expense. 
E) Earnings per share can be negative but dividends per share cannot.

Question 2

Mart's Boutique has sales of $820,000 and costs of $540,000.Interest expense is $36,000 and depreciation is $59,000.The tax rate is 21 percent.What is the net income?

Accepted Answer

A) $221,200 
B) $146,150 
C) $105,000 
D) $179,250 
E) $139,050 
A) $221,200 
B) $146,150 
C) $105,000 
D) $179,250 
E) $139,050

Question 3

Southwest Co.has equipment with a book value of $3,560 that could be sold today for $3,900.Its inventory is valued at $1,780 and could be sold immediately to a competitor at a discount of 25 percent.The firm has $260 in cash and customers owe the firm $950,of which 98 percent is collectible.What is the current market value of the firm's assets?

Accepted Answer

A) $6,086 
B) $5,536 
C) $6,426 
D) $6,316 
E) $5,946 
A) $6,086 
B) $5,536 
C) $6,426 
D) $6,316 
E) $5,946

Question 4

Lester's Markets has total revenues of $3,811,costs of $2,902,depreciation of $315,interest expense of $168,and taxes of $89.At the beginning of the year,the firm had current assets of $2,150,total assets of $4,908,and total liabilities of $1,964.At the end of the year,the current assets are $2,202,total assets are $5,103,and total liabilities are $1,952.What is the amount of net capital spending for the year?

Accepted Answer

A) −$182 
B) $133 
C) $458 
D) $510 
E) $285 
A) −$182 
B) $133 
C) $458 
D) $510 
E) $285

Question 5

Liquidity is:

Accepted Answer

A) a measure of the use of debt in a firm's capital structure. 
B) equal to current assets minus current liabilities. 
C) equal to the market value of a firm's total assets minus its total liabilities. 
D) valuable to a firm even though liquid assets tend to be less profitable to own. 
E) generally most associated with intangible assets. 
A) a measure of the use of debt in a firm's capital structure. 
B) equal to current assets minus current liabilities. 
C) equal to the market value of a firm's total assets minus its total liabilities. 
D) valuable to a firm even though liquid assets tend to be less profitable to own. 
E) generally most associated with intangible assets.

Question 6

Interpret,in words,what the cash flow of the firm represents by discussing operating cash flow,changes in net working capital,and additions to fixed assets.

Accepted Answer

Operating cash flow is the cash flow a f

Question 7

Which one of these is most apt to be a fixed,cash expense in the short run?

Accepted Answer

A) Raw materials cost 
B) Bond interest 
C) Commissions paid to sales representatives 
D) Depreciation 
E) Manufacturing labor costs 
A) Raw materials cost 
B) Bond interest 
C) Commissions paid to sales representatives 
D) Depreciation 
E) Manufacturing labor costs

Question 8

Operating cash flow is defined as:

Accepted Answer

A) Pretax income − Taxes. 
B) Net income − Dividends. 
C) EBIT + Depreciation − Taxes. 
D) Pretax income + Depreciation. 
E) Cash flow to investors + Taxes. 
A) Pretax income − Taxes. 
B) Net income − Dividends. 
C) EBIT + Depreciation − Taxes. 
D) Pretax income + Depreciation. 
E) Cash flow to investors + Taxes.

Question 9

Blauser's started the year with $280 in cash,$924 in inventory,$361 in accounts payable,$1,687 in equipment,and $414 in accounts receivable.At year's end,the firm had $311 in cash,$1,594 in equipment,$1,003 in inventory,$426 in accounts receivable,and $398 in accounts payable.What was the change in net working capital during the year?

Accepted Answer

A) −$860 
B) $191 
C) $85 
D) −$94 
E) −$206 
A) −$860 
B) $191 
C) $85 
D) −$94 
E) −$206

Question 10

A firm has $820 in inventory,$3,200 in fixed assets,$670 in accounts receivable,$390 in accounts payable,$500 in long-term debt,and $360 in cash.What is the amount of the net working capital?

Accepted Answer

A) $890 
B) $960 
C) $3,600 
D) $3,340 
E) $1,460 
A) $890 
B) $960 
C) $3,600 
D) $3,340 
E) $1,460

Question 11

In the accounting statement of cash flows,interest expense is:

Accepted Answer

A) ignored completely. 
B) included as a financing activity. 
C) included both as an operating and as a financing activity. 
D) included as an investing activity. 
E) included in operations. 
A) ignored completely. 
B) included as a financing activity. 
C) included both as an operating and as a financing activity. 
D) included as an investing activity. 
E) included in operations.

Question 12

Payments to creditors that include interest and the repayment of principal are referred to as:

Accepted Answer

A) the cash flow to stockholders. 
B) the reduction in net working capital. 
C) debt service. 
D) operating cash flow. 
E) the change in net working capital. 
A) the cash flow to stockholders. 
B) the reduction in net working capital. 
C) debt service. 
D) operating cash flow. 
E) the change in net working capital.

Question 13

On a balance sheet,deferred taxes are classified as:

Accepted Answer

A) stockholders' equity. 
B) a current asset. 
C) a long-term liability. 
D) a fixed asset. 
E) a current liability. 
A) stockholders' equity. 
B) a current asset. 
C) a long-term liability. 
D) a fixed asset. 
E) a current liability.

Question 14

Delfinio's has total revenues of $4,315,selling and administrative expenses of $611,depreciation of $309,cost of goods sold of $2,403,taxes of $178,dividends of $80,and interest expense of $168.What is the amount of the non-cash items?

Accepted Answer

A) $481 
B) $477 
C) $248 
D) $309 
E) $567 
A) $481 
B) $477 
C) $248 
D) $309 
E) $567

Question 15

Which one of the following statements concerning liquidity is correct?

Accepted Answer

A) Liquid assets generally earn higher rates of return than fixed assets. 
B) If you can sell an asset next year at a price equal to its actual value,the asset is highly liquid. 
C) Liquid assets are defined as those assets obtained within the past year. 
D) The less liquidity a firm has,the lower the probability the firm will encounter financial difficulties. 
E) Balance sheet accounts are listed in order of decreasing liquidity. 
A) Liquid assets generally earn higher rates of return than fixed assets. 
B) If you can sell an asset next year at a price equal to its actual value,the asset is highly liquid. 
C) Liquid assets are defined as those assets obtained within the past year. 
D) The less liquidity a firm has,the lower the probability the firm will encounter financial difficulties. 
E) Balance sheet accounts are listed in order of decreasing liquidity.

Question 16

Earnings per share will increase when:

Accepted Answer

A) depreciation decreases. 
B) the number of shares outstanding increase. 
C) operating income decreases. 
D) dividends per share decrease. 
E) the average tax rate increases. 
A) depreciation decreases. 
B) the number of shares outstanding increase. 
C) operating income decreases. 
D) dividends per share decrease. 
E) the average tax rate increases.

Question 17

For the year,Jensen's has depreciation of $2,058,dividends paid of $125,interest expense of $382,an addition to retained earnings of $3,408,and an increase in common stock of $2,500.The total tax rate is 21 percent.What is the operating cash flow?

Accepted Answer

A) $6,460 
B) $5,973 
C) $5,325 
D) $5,735 
E) $6,408 
A) $6,460 
B) $5,973 
C) $5,325 
D) $5,735 
E) $6,408

Question 18

For a growing firm,the change in net working capital is generally:

Accepted Answer

A) positive. 
B) negative. 
C) highly erratic. 
D) highly negative. 
E) equal to zero. 
A) positive. 
B) negative. 
C) highly erratic. 
D) highly negative. 
E) equal to zero.

Question 19

For the year,Peggy Grey's Cookies had net income of $8,110.The firm paid out 30 percent of the net income to its shareholders as dividends and also paid $210 in interest.During the year,the company repurchased $500 worth of common stock and borrowed $250.What is the cash flow to stockholders?

Accepted Answer

A) $2,933 
B) $1,893 
C) $1,933 
D) $2,433 
E) $2,893 
A) $2,933 
B) $1,893 
C) $1,933 
D) $2,433 
E) $2,893

Question 20

The book value of assets:

Accepted Answer

A) is determined under Generally Accepted Accounting Principles (GAAP)and is based on the cost of those assets. 
B) represents the true market value of those assets according to GAAP. 
C) is always the best measure of the company's value to an investor. 
D) is always higher than the replacement cost of the assets. 
E) is shown on the firm's income statement. 
A) is determined under Generally Accepted Accounting Principles (GAAP)and is based on the cost of those assets. 
B) represents the true market value of those assets according to GAAP. 
C) is always the best measure of the company's value to an investor. 
D) is always higher than the replacement cost of the assets. 
E) is shown on the firm's income statement.

Exam 2: Financial Statements and Cash Flow

Which one of these statements is correct?

Mart's Boutique has sales of $820,000 and costs of $540,000.Interest expense is $36,000 and depreciation is $59,000.The tax rate is 21 percent.What is the net income?

Liquidity is:

Interpret,in words,what the cash flow of the firm represents by discussing operating cash flow,changes in net working capital,and additions to fixed assets.

Which one of these is most apt to be a fixed,cash expense in the short run?

Operating cash flow is defined as:

A firm has $820 in inventory,$3,200 in fixed assets,$670 in accounts receivable,$390 in accounts payable,$500 in long-term debt,and $360 in cash.What is the amount of the net working capital?

In the accounting statement of cash flows,interest expense is:

Payments to creditors that include interest and the repayment of principal are referred to as:

On a balance sheet,deferred taxes are classified as:

Delfinio's has total revenues of $4,315,selling and administrative expenses of $611,depreciation of $309,cost of goods sold of $2,403,taxes of $178,dividends of $80,and interest expense of $168.What is the amount of the non-cash items?

Which one of the following statements concerning liquidity is correct?

Earnings per share will increase when:

For the year,Jensen's has depreciation of $2,058,dividends paid of $125,interest expense of $382,an addition to retained earnings of $3,408,and an increase in common stock of $2,500.The total tax rate is 21 percent.What is the operating cash flow?

For a growing firm,the change in net working capital is generally:

For the year,Peggy Grey's Cookies had net income of $8,110.The firm paid out 30 percent of the net income to its shareholders as dividends and also paid $210 in interest.During the year,the company repurchased $500 worth of common stock and borrowed $250.What is the cash flow to stockholders?

The book value of assets:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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