Question 1

Free cash flow is:

Accepted Answer

A) the money generated from the sale of new shares of stock. 
B) another term for operating cash flow. 
C) the cash generated by decreasing net working capital. 
D) cash that the firm can distribute to creditors and stockholders. 
E) the net income of a firm after taxes have been paid. 
A) the money generated from the sale of new shares of stock. 
B) another term for operating cash flow. 
C) the cash generated by decreasing net working capital. 
D) cash that the firm can distribute to creditors and stockholders. 
E) the net income of a firm after taxes have been paid.

Question 2

A firm starts its year with positive net working capital.During the year,the firm acquires more short-term debt than it does short-term assets.This means that:

Accepted Answer

A) the ending net working capital must be negative. 
B) both accounts receivable and inventory decreased during the year. 
C) the beginning current assets were less than the beginning current liabilities. 
D) accounts payable increased and inventory decreased during the year. 
E) the ending net working capital can be positive,negative,or equal to zero. 
A) the ending net working capital must be negative. 
B) both accounts receivable and inventory decreased during the year. 
C) the beginning current assets were less than the beginning current liabilities. 
D) accounts payable increased and inventory decreased during the year. 
E) the ending net working capital can be positive,negative,or equal to zero.

Question 3

JJ's has net sales of $48,920,depreciation of $711,cost of goods sold of $31,890,administrative costs of $11,210,interest expense of $680,dividends paid of $450,and taxes of $974.What is the cash flow from operations as it will appear on the accounting statement of cash flows if the firm spent $274 on net working capital?

Accepted Answer

A) $3,892 
B) $3,056 
C) $4,066 
D) $3,667 
E) $3,391 
A) $3,892 
B) $3,056 
C) $4,066 
D) $3,667 
E) $3,391

Question 4

Discuss the difference between book values and market values on the balance sheet and explain the best method for determining the value of a firm to its stockholders.

Accepted Answer

The accounts on the balance sheet are ge

Question 5

Cash flow to stockholders is defined as:

Accepted Answer

A) cash dividends paid. 
B) repurchases of equity less new equity sold minus cash dividends paid. 
C) cash flow from financing less cash flow to creditors. 
D) cash dividends paid plus repurchases of equity minus new equity financing. 
E) cash flow from assets plus cash flow to creditors. 
A) cash dividends paid. 
B) repurchases of equity less new equity sold minus cash dividends paid. 
C) cash flow from financing less cash flow to creditors. 
D) cash dividends paid plus repurchases of equity minus new equity financing. 
E) cash flow from assets plus cash flow to creditors.

Question 6

Which one of these is a non-cash item?

Accepted Answer

A) Deferred taxes 
B) Interest expense 
C) Current taxes 
D) Dividends 
E) Selling expenses 
A) Deferred taxes 
B) Interest expense 
C) Current taxes 
D) Dividends 
E) Selling expenses

Question 7

According to Generally Accepted Accounting Principles (GAAP),revenue is recognized as income when:

Accepted Answer

A) a contract is signed to perform a service or deliver a good. 
B) the transaction is complete and the goods or services are delivered. 
C) payment is requested. 
D) income taxes are paid on the revenue earned. 
E) managers decide to recognize it. 
A) a contract is signed to perform a service or deliver a good. 
B) the transaction is complete and the goods or services are delivered. 
C) payment is requested. 
D) income taxes are paid on the revenue earned. 
E) managers decide to recognize it.

Question 8

During the year,Lasko's repaid $12,500 in long-term debt,borrowed $8,400,paid $611 in interest and $740 in dividends,and had an operating cash flow of $16,207.The firm acquired $33,500 in new fixed assets and sold $8,400 of old assets.Net working capital declined by $1,592 during the year.What is the annual cash flow to stockholders?

Accepted Answer

A) $1,200 
B) −$2,590 
C) −$8,828 
D) −$12,012 
E) $2,800 
A) $1,200 
B) −$2,590 
C) −$8,828 
D) −$12,012 
E) $2,800

Question 9

For a given year,Mfg.Corp.had taxable income of $1,630 and a tax rate of 23 percent.The firm neither issued nor repurchased shares of stock but did decrease its retained earnings by $310.What is the cash flow to stockholders?

Accepted Answer

A) $1,749.50 
B) $535.50 
C) $959.50 
D) $1,242.50 
E) $1,565.10 
A) $1,749.50 
B) $535.50 
C) $959.50 
D) $1,242.50 
E) $1,565.10

Question 10

Assuming the number of shares outstanding and total earnings remains constant,an increase in dividends per share will:

Accepted Answer

A) reduce the earnings per share. 
B) reduce the addition to retained earnings. 
C) reduce net income. 
D) increase total equity. 
E) increase total assets. 
A) reduce the earnings per share. 
B) reduce the addition to retained earnings. 
C) reduce net income. 
D) increase total equity. 
E) increase total assets.

Question 11

As seen on the income statement of a tax-paying firm:

Accepted Answer

A) interest is deducted from income and increases the total taxes incurred. 
B) the tax rate is applied to the earnings before interest and taxes when the firm pays interest. 
C) depreciation is shown as an expense but does not affect the tax expense. 
D) depreciation reduces both the pretax income and the net income. 
E) interest expense is added to earnings before interest and taxes to compute pretax income. 
A) interest is deducted from income and increases the total taxes incurred. 
B) the tax rate is applied to the earnings before interest and taxes when the firm pays interest. 
C) depreciation is shown as an expense but does not affect the tax expense. 
D) depreciation reduces both the pretax income and the net income. 
E) interest expense is added to earnings before interest and taxes to compute pretax income.

Question 12

Depreciation for a profitable firm:

Accepted Answer

A) decreases both operating and net income. 
B) increases the net fixed assets as shown on the balance sheet. 
C) reduces both the net fixed assets and the costs of a firm. 
D) is a non-cash expense which increases the net operating income. 
E) decreases net fixed assets,net income,and operating cash flows. 
A) decreases both operating and net income. 
B) increases the net fixed assets as shown on the balance sheet. 
C) reduces both the net fixed assets and the costs of a firm. 
D) is a non-cash expense which increases the net operating income. 
E) decreases net fixed assets,net income,and operating cash flows.

Question 13

Define liquidity and explain what a firm would need to do to ensure all of the current assets displayed on its balance sheet are liquid.

Accepted Answer

Liquid assets are those that can be sold

Question 14

Explain why the income statement is not a good representation of cash flow.

Accepted Answer

Most income statements contain some nonc

Question 15

Assume Juno's paid $368,060 in taxes on taxable income of $1,673,000 last year.This year,the firm paid $401,545 in taxes on taxable income of $1,818,586.Assume the tax rates were the same for both years.What are the marginal and average tax rates for this year?

Accepted Answer

A) 21 percent; 21 percent 
B) 22 percent; 21 percent 
C) 23 percent; 22 percent 
D) 22 percent; 22 percent 
E) 23 percent; 21 percent 
A) 21 percent; 21 percent 
B) 22 percent; 21 percent 
C) 23 percent; 22 percent 
D) 22 percent; 22 percent 
E) 23 percent; 21 percent

Question 16

Northern Express paid $85 in dividends and $110 in interest expense during a given year.During that same year,the firm issued $40 in new equity shares,issued new debt of $65,and repaid $23 of old debt.What is the cash flow to creditors for that year?

Accepted Answer

A) $152 
B) $146 
C) $237 
D) $68 
E) $46 
A) $152 
B) $146 
C) $237 
D) $68 
E) $46

Question 17

At the beginning of the year,a firm had total assets of $51,400,fixed assets of $32,800,and current liabilities of $13,280.At the end of the year,the current assets are $14,800,the fixed assets are $34,100,and the current liabilities are $14,210.What is the change in net working capital for the year?

Accepted Answer

A) −$18,930 
B) −$6,950 
C) $11,470 
D) −$4,730 
E) $9,110 
A) −$18,930 
B) −$6,950 
C) $11,470 
D) −$4,730 
E) $9,110

Question 18

Net capital spending is equal to the:

Accepted Answer

A) net change in total assets plus depreciation. 
B) net change in fixed assets plus depreciation. 
C) net income plus depreciation. 
D) difference between the market and book values of the total assets. 
E) change in total assets. 
A) net change in total assets plus depreciation. 
B) net change in fixed assets plus depreciation. 
C) net income plus depreciation. 
D) difference between the market and book values of the total assets. 
E) change in total assets.

Question 19

Last year,Webster Farms had annual revenue of $87,200,depreciation of $11,600,cost of goods sold of $54,700,and administrative expenses of $8,300.The firm paid $3,200 in dividends and paid taxes of $2,646.What was the operating cash flow?

Accepted Answer

A) $21,500 
B) $18,300 
C) $23,100 
D) $21,554 
E) $23,700 
A) $21,500 
B) $18,300 
C) $23,100 
D) $21,554 
E) $23,700

Question 20

Why is cash flow management important?

Accepted Answer

Generally Accepted Accounting Principles

Exam 2: Financial Statements and Cash Flow

Free cash flow is:

A firm starts its year with positive net working capital.During the year,the firm acquires more short-term debt than it does short-term assets.This means that:

Discuss the difference between book values and market values on the balance sheet and explain the best method for determining the value of a firm to its stockholders.

Cash flow to stockholders is defined as:

Which one of these is a non-cash item?

According to Generally Accepted Accounting Principles (GAAP),revenue is recognized as income when:

For a given year,Mfg.Corp.had taxable income of $1,630 and a tax rate of 23 percent.The firm neither issued nor repurchased shares of stock but did decrease its retained earnings by $310.What is the cash flow to stockholders?

Assuming the number of shares outstanding and total earnings remains constant,an increase in dividends per share will:

As seen on the income statement of a tax-paying firm:

Depreciation for a profitable firm:

Define liquidity and explain what a firm would need to do to ensure all of the current assets displayed on its balance sheet are liquid.

Explain why the income statement is not a good representation of cash flow.

Assume Juno's paid $368,060 in taxes on taxable income of $1,673,000 last year.This year,the firm paid $401,545 in taxes on taxable income of $1,818,586.Assume the tax rates were the same for both years.What are the marginal and average tax rates for this year?

Northern Express paid $85 in dividends and $110 in interest expense during a given year.During that same year,the firm issued $40 in new equity shares,issued new debt of $65,and repaid $23 of old debt.What is the cash flow to creditors for that year?

Net capital spending is equal to the:

Last year,Webster Farms had annual revenue of $87,200,depreciation of $11,600,cost of goods sold of $54,700,and administrative expenses of $8,300.The firm paid $3,200 in dividends and paid taxes of $2,646.What was the operating cash flow?

Why is cash flow management important?

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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