Question 1

Sander's Corner Market had annual sales of $326,000 and total assets of $245,000. What is the return on assets if the profit margin is 9%?

Accepted Answer

A)  8.56%
B)  9.88%
C)  10.18%
D)  11.51%
E)  11.98% E

Question 2

A firm has current sales of $56,000. Projected sales for next year are $60,000. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The expected increase in retained earnings is $3,100. What is the projected external financing need given the following current account values?
$\begin{array}{lrr}
\text { Current assets } & \$ & 10,700 \
\text { Net fixed assets } & \$ & 26,000 \
\text { Current liabilities } & \$ & 7,800 \
\text { Long-term debt } & \$ & 10,400 \
\text { Common stock } & \$ & 5,000 \
\text { Retained earnings } & \$ & 12,400
\end{array}$

Accepted Answer

A)  $64
B)  $480
C)  $987
D)  $1,480
E)  $39,321  A

Question 3

Which of the following reports are always included in a 10-K filing with the SEC?I. statement of cash flows
II. balance sheet
III. pro forma statement
IV. income statement

Accepted Answer

A)  I only
B)  IV only
C)  II, III, and IV only
D)  I, II, and IV only
E)  I, II, III, and IV D

Question 4

Which one of the following is the cash flow resulting from the payment of dividends and the issuance or repurchase of equity securities?

Accepted Answer

A)  balance sheet cash flow
B)  operating cash flow
C)  financing cash flow
D)  business cash flow
E)  investment cash flow

Question 5

For the year, Widgets Manufacturing, Inc., increased its current assets accounts by $54,000, decreased its current liabilities by $45,000, and decreased its fixed assets by $76,500. What is the investment cash flow for the year?

Accepted Answer

A)  $9,000
B)  $48,000
C)  $67,500
D)  $76,500
E)  $85,500

Question 6

Which one of the following accounts is least likely to vary directly with the level of sales?

Accepted Answer

A)  accounts payable
B)  inventory
C)  cost of goods sold
D)  interest expense
E)  accounts receivable

Question 7

The Cruise Ship Co. has taxable income of $3,500,000. The company paid out $550,000 in interest expense. The tax rate is 21% and the dividend payout ratio is 30%. What is the amount that was paid out in dividends?

Accepted Answer

A)  $420,000
B)  $550,000
C)  $682,500
D)  $780,000
E)  $829,500

Question 8

A company has a price-earnings ratio of 15 and a price-cash flow ratio of 10. If the earnings per share are $1.39, what is the cash flow per share?

Accepted Answer

A)  $1.89
B)  $2.09
C)  $2.53
D)  $2.98
E)  $3.10

Question 9

Which one of the following is a financial planning method wherein some account values vary in relation to expected sales?

Accepted Answer

A)  common size approach
B)  linear method
C)  percentage of net income method
D)  adjusted sales method
E)  percentage of sales approach

Question 10

Which one of the following is NOT a financing cash flow according to standard accounting practice?

Accepted Answer

A)  new issue of stock
B)  repurchase of stock
C)  new issue of debt
D)  interest payments
E)  dividend payments

Question 11

API, Inc., had annual sales of $1,590,000 and total assets of $832,000. What is the return on assets if the profit margin is 10.5%?

Accepted Answer

A)  18.56%
B)  19.88%
C)  20.07%
D)  20.22%
E)  21.58%

Question 12

Which one of the following will increase the return on equity?

Accepted Answer

A)  increase in the corporate tax rate
B)  decrease in cost of goods sold
C)  issuance of debt to purchase equipment
D)  increase in variable costs per unit
E)  decrease in net sales

Question 13

O'Hara's Market has net income of $1.6 million and 525,000 shares of stock outstanding. What is the amount of the dividends per share if the plowback ratio is 60%?

Accepted Answer

A)  $.94
B)  $1.07
C)  $1.22
D)  $1.67
E)  $1.98

Question 14

Which one of the following represents the amounts owed by a firm to other parties?

Accepted Answer

A)  assets
B)  cash inflows
C)  equities
D)  liabilities
E)  expenses

Question 15

What is the investment cash flow, given the following information?
$\begin{array}{lrr}
  \text {  Net income} &\$560\
 \text {Depreciation  } &\$50\
 \text {  Issuance of new stock} &\$35\
 \text { Repayment of long-term debt } &\$70\
 \text {Sale of old equipment  } &\$70\
 \text {  Purchase of new equipment} &\$80\
 \text {  Dividend payments} &\$75\
 \text {  Interest payments} &\$90\
\end{array}$

Accepted Answer

A)  $220
B)  $140
C)  $120
D)  $20
E)  $10

Question 16

Gemco Surfboards, Inc., has 530,000 shares of stock outstanding. The firm paid out $410,000 in dividends, $275,000 in interest, and added $340,000 to retained earnings for the year. What is the amount of the earnings per share?

Accepted Answer

A)  $1.24
B)  $1.42
C)  $1.55
D)  $1.66
E)  $1.86

Question 17

For the year, Wilson Manufacturing, Inc., increased its current assets by $62,000, decreased its current liabilities by $55,000, and decreased its fixed assets by $19,000. What is the investment cash flow for the year?

Accepted Answer

A)  −$31,000
B)  −$12,000
C)  $19,000
D)  $31,000
E)  $48,000

Question 18

Which one of the following is an ownership interest in a firm?

Accepted Answer

A)  asset
B)  expense
C)  net income
D)  liability
E)  equity

Question 19

Income and expense items NOT realized in cash form are referred to as which one of the following?

Accepted Answer

A)  deductible expenses
B)  noncash items
C)  intangible assets
D)  operating income
E)  financing activities

Question 20

A firm has net income of $32,000 on sales of $190,000. Sales are expected to increase by 6% next year and the dividend payout ratio is 35%. The firm uses the percentage of sales approach when compiling pro forma statements. What amount is expected to be added to retained earnings next year?

Accepted Answer

A)  $14,300
B)  $15,400
C)  $15,686
D)  $17,550
E)  $22,048

Exam 19: Projecting Cash Flow and Earnings