Exam 2: Reviewing Financial Statements

Which of the following is the term within the GAAP framework whereby firms can engage in a process of controlling their earnings,otherwise known as "smoothing" their earnings,as long as it's not taken to an extreme.

Consider a firm with an EBIT of $500,000.The firm finances its assets with $2,000,000 debt (costing 6 percent)and 50,000 shares of stock selling at $20.00 per share.To reduce the firm's risk associated with this financial leverage,the firm is considering reducing its debt by $1,000,000 by selling an additional 50,000 shares of stock.The firm is in the 40 percent tax bracket.The change in capital structure will have no effect on the operations of the firm.Thus,EBIT will remain $500,000.What is the change in the firm's EPS from this change in capital structure?

LLV Inc.originally forecasted the following financial data for next year: sales = $1,000,cost of goods sold = $710,and interest expense = $95.The firm believes that COGS will always be 71 percent of sales.Due to pressure from shareholders,the firm wants to achieve a net income of $150.Assuming the interest expense will remain the same,how large must sales be to achieve this goal? Assume a 35 percent tax rate.

Deferred taxes occur when a company postpones taxes on profits pertaining to

Ed's Tobacco Shop has total assets of $100 million.Fifty percent of these assets are financed with debt of which $37 million is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $32 million.Using this information what is the balance for long-term debt and retained earnings on Ed's Tobacco Shop's balance sheet?

A firm has operating income of $1,000,depreciation expense of $185,and its investment in operating capital is $400.The firm is 100 percent equity financed and has a 35 percent tax rate.What is the firm's operating cash flow?

You are evaluating the balance sheet for Epic Corporation.From the balance sheet you find the following balances: cash and marketable securities = $500,000,accounts receivable = $200,000,inventory = $100,000,accrued wages and taxes = $50,000,accounts payable = $60,000,and notes payable = $200,000.Calculate Epic's net working capital.

Tater and Pepper Corp.reported free cash flows for 2018 of $20 million and investment in operating capital of $15 million.Tater and Pepper listed $8 million in depreciation expense and $12 million in taxes on its 2018 income statement.Calculate Tater and Pepper's 2018 EBIT.

Which financial statement reports a firm's assets,liabilities,and equity at a particular point in time?

Financial statements of publicly traded firms can be found in a number of places.Which of the following is NOT an option for finding publicly traded firms' financial statements?

Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?

Suppose that in addition to the $300,000 of taxable income from operations,Liam's Burgers,Inc.received $25,000 of interest on state-issued bonds and $50,000 of dividends on common stock it owns in Sodas,Inc.Using the tax schedule in Table 2.3 what is Liam's income tax liability? What are Liam's average and marginal tax rates on total taxable income?

The 2011 income statement for Duffy's Pest Control shows that depreciation expense is $180 million,EBIT is $420 million,EBT is $240 million,and the tax rate is 30 percent.At the beginning of the year,the balance of gross fixed assets was $1,500 million and net operating working capital was $500 million.At the end of the year gross fixed assets was $1,803 million.Duffy's free cash flow for the year was $425 million.Calculate the end of year balance for net operating working capital.

Acme Bricks balance sheet lists net fixed assets as $40 million.The fixed assets could currently be sold for $50 million.Acme's current balance sheet shows current liabilities of $15 million and net working capital of $12 million.If all the current accounts were liquidated today,the company would receive $77 million cash after paying $15 million in liabilities.What is the book value of Acme's assets today? What is the market value of these assets?

Bullseye,Inc.'s 2018 income statement lists the following income and expenses: EBIT = $900,000,interest expense = $85,000,and net income = $570,000.What are the 2018 taxes reported on the income statement?

Net operating profit after taxes (NOPAT)is defined as which of the following?

An equity-financed firm will

Cash flows available to pay the firm's stockholders and debt holders after the firm has made the necessary working capital investments,fixed asset investments,and developed the necessary new products to sustain the firm's ongoing operations is referred to as:

This is cash flow available for payments to stockholders and debt holders of a firm after the firm has made investments in assets necessary to sustain the ongoing operations of the firm.

A firm had EBIT of $1,000,paid taxes of $225,expensed depreciation at $13,and its gross fixed assets increased by $25.What was the firm's operating cash flow?