Question 1

Webster World has sales of $12,900,costs of $5,800,depreciation expense of $1,100,and interest expense of $700.What is the operating cash flow if the tax rate is 32 percent?
A)$4,704
B)$5,749
C)$5,404
D)$7,036
E)$7,100

Accepted Answer

Earnings before interest and taxes = $12,900 - $5,800 - $1,100 = $6,000Taxable income = $6,000 - $700 = $5,300Tax = .32($5,300) = $1,696Operating cash flow = $6,000 + $1,100 - $1,696 = $5,404

Question 2

The 2010 balance sheet of Global Tours showed current assets of $1,360 and current liabilities of $940.The 2011 balance sheet showed current assets of $1,640 and current liabilities of $1,140.What was the change in net working capital for 2011?
A)$80
B)$170
C)$190
D)$880
E)$920

Accepted Answer

Change in net working capital = ($1,640 - $1,140) - ($1,360 - $940) = $80

Question 3

The Widget Co.purchased new machinery three years ago for $4 million.The machinery can be sold to the Roman Co.today for $2 million.The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000,current liabilities of $1,375,000,and net working capital of $725,000.If all the current assets were liquidated today,the company would receive $1.9 million in cash.The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.
A)$4,600,000; $3,900,000
B)$4,600,000; $3,125,000
C)$5,000,000; $3,125,000
D)$5,000,000; $3,900,000
E)$6,500,000; $3,900,000

Accepted Answer

Book value = ($725,000 + $1,375,000) + $2,500,000 = $4,600,000Market value = $1,900,000 + $2,000,000 = $3,900,000

Question 4

Assume you are the financial officer of a major firm.The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little,if any,return to the firm.How would you respond to this statement?

Accepted Answer

The answer of Assume you are the financial officer of...

Question 5

Suppose you are given the following information for Bayside Bakery: sales = $30,000; costs = $15,000; addition to retained earnings = $4,221; dividends paid = $469; interest expense = $1,300; tax rate = 30 percent.What is the amount of the depreciation expense?
A)$4,820
B)$5,500
C)$7,000
D)$8,180
E)$9,500

Accepted Answer

Net income = $469 + $4,221 = $4,690Earnings before taxes = $4,690/(1 - .30) = $6,700Earnings before interest and taxes = $6,700 + $1,300 = $8,000Depreciation = $30,000 - $15,000 - $8,000 = $7,000

Question 6

The Lakeside Inn had operating cash flow of $48,450.Depreciation was $6,700 and interest paid was $2,480.A net total of $2,620 was paid on long-term debt.The firm spent $24,000 on fixed assets and decreased net working capital by $1,330.What is the amount of the cash flow to stockholders?
A)$5,100
B)$7,830
C)$18,020
D)$19,998
E)$20,680

Accepted Answer

Cash flow from assets = $48,450 - (-$1,330) - $24,000 = $25,780Cash flow to creditors = $2,480 - (-$2,620) = $5,100Cash flow to stockholders = $25,780 - $5,100 = $20,680

Question 7

At the beginning of the year,the long-term debt of a firm was $72,918 and total debt was $138,407.At the end of the year,long-term debt was $68,219 and total debt was $145,838.The interest paid was $6,430.What is the amount of the cash flow to creditors?
A)-$18,348
B)-$1,001
C)$11,129
D)$13,861
E)$19,172

Accepted Answer

Cash flow to creditors = $6,430 - ($68,219 - $72,918) = $11,129

Question 8

At the beginning of the year,a firm had current assets of $121,306 and current liabilities of $124,509.At the end of the year,the current assets were $122,418 and the current liabilities were $103,718.What is the change in net working capital?
A)-$19,679
B)-$11,503
C)-$9,387
D)$1,809
E)$21,903

Accepted Answer

Change in net working capital = ($122,418 - $103,718) - ($121,306 - $124,509) = $21,903

Question 9

During 2011,RIT Corp.had sales of $565,600.Costs of goods sold,administrative and selling expenses,and depreciation expenses were $476,000,$58,800,and $58,800,respectively.In addition,the company had an interest expense of $112,000 and a tax rate of 32 percent.What is the operating cash flow for 2009? Ignore any tax loss carry-back or carry-forward provisions.
A)$17,920
B)$21,840
C)$30,800
D)$52,600
E)$77,840

Accepted Answer

Earnings before interest and taxes = Net income = $565,600 - $476,000 - $58,800 - $58,800 = -$28,000Operating cash flow = -$28,000 + $58,800 - $0 = $30,800

Question 10

The managers of a firm wish to expand the firm's operations and are trying to determine the amount of debt financing the firm should obtain versus the amount of equity financing that should be raised.The managers have asked you to explain the effects that both of these forms of financing would have on the cash flows of the firm.Write a short response to this request.

Accepted Answer

The answer of The managers of a firm wish to...

Question 11

Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919.The beginning and ending total debt balances were $84,652 and $78,613,respectively.The interest paid was $4,767.What is the amount of the cash flow to creditors?
A)-$1,641
B)-$1,272
C)$1,272
D)$7,418
E)$11,175

Accepted Answer

Cash flow to creditors = $4,767 - ($48,919 - $42,511) = -$1,641

Question 12

The 2010 balance sheet of The Sports Store showed $800,000 in the common stock account and $6.7 million in the additional paid-in surplus account.The 2011 balance sheet showed $872,000 and $8 million in the same two accounts,respectively.The company paid out $600,000 in cash dividends during 2011.What is the cash flow to stockholders for 2011?
A)-$1,372,000
B)-$772,000
C)-$628,000
D)$372,000
E)$1,972,000

Accepted Answer

Cash flow to stockholders = $600,000 - [($872,000 + $8,000,000) - ($800,000 + $6,700,000) = -$772,000

Question 13

Dee Dee's Marina is obligated to pay its creditors $6,400 today.The firm's assets have a current market value of $5,900.What is the current market value of the shareholders' equity?
A)-$600
B)-$500
C)$0
D)$500
E)$600

Accepted Answer

Shareholders' equity = Max [($5,900 - $6,400),0]. Since the market value of equity cannot be negative, the answer is zero.

Question 14

As long as a firm maintains a positive cash balance,why is it essential to review the firm's cash flows?

Accepted Answer

The answer of As long as a firm maintains a...

Question 15

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends.During the year,the company sold $75,000 worth of common stock.What is the cash flow to stockholders?
A)-$75,000
B)-$26,360
C)-$2,040
D)$123,640
E)$147,960

Accepted Answer

Cash flow to stockholders = .40($121,600) - $75,000 = -$26,360

Question 16

The 2010 balance sheet of The Beach Shoppe showed long-term debt of $2.1 million,and the 2011 balance sheet showed long-term debt of $2.3 million.The 2011 income statement showed an interest expense of $250,000.What was the cash flow to creditors for 2011?
A)-$200,000
B)-$150,000
C)$50,000
D)$200,000
E)$450,000

Accepted Answer

Cash flow to creditors = $250,000 - ($2,300,000 - $2,100,000) = $50,000

Question 17

Discuss the difference between book values and market values and explain which one is more important to the financial manager and why.

Accepted Answer

The answer of Discuss the difference between book values and...

Question 18

Boyer Enterprises had $200,000 in 2011 taxable income.What is the firm's average tax rate based on the rates shown in the following table? $$\begin{array} { l c } 
\text { Taxable income } & \text { Tax rate } \
\$ 0 - 50,000 & 15 \% \
50,001 - 75,000 & 25 \% \
75,001 - 100,000 & 34 \% \
101,000 - 335,000 & 39 \%
\end{array}$$
A)28.25 percent
B)30.63 percent
C)32.48 percent
D)36.50 percent
E)39.00 percent

Accepted Answer

Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($200,000 - $100,000) = $61,250Average tax rate = $61,250/$200,000 = 30.63 percent

Question 19

The Blue Bonnet's 2010 balance sheet showed net fixed assets of $2.2 million,and the 2011 balance sheet showed net fixed assets of $2.6 million.The company's income statement showed a depreciation expense of $900,000.What was the amount of the net capital spending for 2011?
A)-$500,000
B)$400,000
C)$1,300,000
D)$1,700,000
E)$1,800,000

Accepted Answer

Net capital spending = $2,600,000 - $2,200,000 + $900,000 = $1,300,000

Question 20

Beach Front Industries has sales of $546,000,costs of $295,000,depreciation expense of $37,000,interest expense of $15,000,and a tax rate of 32 percent.The firm paid $59,000 in cash dividends.What is the addition to retained earnings?
A)$76,320
B)$81,700
C)$95,200
D)$103,460
E)$121,680

Accepted Answer

Net income = ($546,000 - $295,000 - $37,000 - $15,000) (1 - .32) = $135,320Addition to retained earnings = $135,320 - $59,000 = $76,320

Quiz 2: Financial Statements,Taxes,and Cash Flow

Webster World has sales of $12,900,costs of $5,800,depreciation expense of $1,100,and interest expense of $700.What is the operating cash flow if the tax rate is 32 percent?

The 2010 balance sheet of Global Tours showed current assets of $1,360 and current liabilities of $940.The 2011 balance sheet showed current assets of $1,640 and current liabilities of $1,140.What was the change in net working capital for 2011?

Assume you are the financial officer of a major firm.The president of the firm has just stated that she wishes to reduce the firm's investment in current assets since those assets provide little,if any,return to the firm.How would you respond to this statement?

Suppose you are given the following information for Bayside Bakery: sales = $30,000; costs = $15,000; addition to retained earnings = $4,221; dividends paid = $469; interest expense = $1,300; tax rate = 30 percent.What is the amount of the depreciation expense?

The Lakeside Inn had operating cash flow of $48,450.Depreciation was $6,700 and interest paid was $2,480.A net total of $2,620 was paid on long-term debt.The firm spent $24,000 on fixed assets and decreased net working capital by $1,330.What is the amount of the cash flow to stockholders?

At the beginning of the year,the long-term debt of a firm was $72,918 and total debt was $138,407.At the end of the year,long-term debt was $68,219 and total debt was $145,838.The interest paid was $6,430.What is the amount of the cash flow to creditors?

At the beginning of the year,a firm had current assets of $121,306 and current liabilities of $124,509.At the end of the year,the current assets were $122,418 and the current liabilities were $103,718.What is the change in net working capital?

Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919.The beginning and ending total debt balances were $84,652 and $78,613,respectively.The interest paid was $4,767.What is the amount of the cash flow to creditors?

Dee Dee's Marina is obligated to pay its creditors $6,400 today.The firm's assets have a current market value of $5,900.What is the current market value of the shareholders' equity?

As long as a firm maintains a positive cash balance,why is it essential to review the firm's cash flows?

The Daily News had net income of $121,600 of which 40 percent was distributed to the shareholders as dividends.During the year,the company sold $75,000 worth of common stock.What is the cash flow to stockholders?

The 2010 balance sheet of The Beach Shoppe showed long-term debt of $2.1 million,and the 2011 balance sheet showed long-term debt of $2.3 million.The 2011 income statement showed an interest expense of $250,000.What was the cash flow to creditors for 2011?

Discuss the difference between book values and market values and explain which one is more important to the financial manager and why.

The Blue Bonnet's 2010 balance sheet showed net fixed assets of $2.2 million,and the 2011 balance sheet showed net fixed assets of $2.6 million.The company's income statement showed a depreciation expense of $900,000.What was the amount of the net capital spending for 2011?

Beach Front Industries has sales of $546,000,costs of $295,000,depreciation expense of $37,000,interest expense of $15,000,and a tax rate of 32 percent.The firm paid $59,000 in cash dividends.What is the addition to retained earnings?