Ch2 Financial Statements, Taxes, And Cash Test Bank Docx - Corporate Finance 2e Test Bank by Stephen A. Ross. DOCX document preview.
Chapter 02
Financial Statements, Taxes, and Cash Flow
Multiple Choice Questions
1. | Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
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2. | Net working capital is defined as:
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3. | The common set of standards and procedures by which audited financial statements are prepared is known as the:
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4. | Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
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5. | Noncash items refer to:
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6. | The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.
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7. | The _____ tax rate is equal to total taxes divided by total taxable income.
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8. | The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:
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9. | Which term relates to the cash flow which results from a firm's ongoing, normal business activities?
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10. | Cash flow from assets is also known as the firm's:
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11. | The cash flow related to interest payments less any net new borrowing is called the:
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12. | Cash flow to stockholders is defined as:
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13. | Which one of the following is classified as an intangible fixed asset?
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14. | Which of the following are current assets?
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15. | Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?
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16. | Which of the following are included in current liabilities?
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17. | Which one of the following will increase the value of a firm's net working capital?
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18. | Which one of the following statements concerning net working capital is correct?
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19. | Which one of the following statements concerning net working capital is correct?
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20. | Which one of the following accounts is the most liquid?
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21. | Which one of the following represents the most liquid asset?
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22. | Which one of the following statements related to liquidity is correct?
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23. | Shareholders' equity:
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24. | The higher the degree of financial leverage employed by a firm, the:
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25. | The book value of a firm is:
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26. | Which of the following is (are) included in the market value of a firm but are excluded from the firm's book value?
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27. | You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?
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28. | Which one of the following is true according to Generally Accepted Accounting Principles?
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29. | Which one of these is most apt to be a fixed cost?
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30. | Which one of the following costs is most apt to be a fixed cost?
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31. | Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes?
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32. | Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.
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33. | Which one of the following statements related to taxes is correct?
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34. | As of 2012, which one of the following statements concerning corporate income taxes is correct?
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35. | Depreciation:
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36. | Which one of the following statements related to an income statement is correct?
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37. | Which one of the following statements is correct concerning a corporation with taxable income of $125,000?
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38. | Which one of the following will increase the cash flow from assets, all else equal?
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39. | For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.
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40. | Which one of the following must be true if a firm had a negative cash flow from assets?
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41. | An increase in the depreciation expense will do which of the following?
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42. | Which one of the following is NOT included in cash flow from assets?
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43. | Net capital spending:
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44. | Which one of the following statements related to the cash flow to creditors is correct?
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45. | A positive cash flow to stockholders indicates which one of the following with certainty?
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46. | A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?
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47. | A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230, and fixed assets are $3,910. What is the amount of the total liabilities?
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48. | A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity?
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49. | Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?
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50. | Bonner Collision has shareholders' equity of $141,800. The firm owes a total of $126,000 of which 60 percent is payable within the next year. The firm net fixed assets of $161,900. What is the amount of the net working capital?
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51. | Four years ago, Velvet Purses purchased a mailing machine at a cost of $176,000. This equipment is currently valued at $64,500 on today's balance sheet but could actually be sold for $58,900. This is the only fixed asset the firm owns. Net working capital is $57,200 and long-term debt is $111,300. What is the book value of shareholders' equity?
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52. | Jake owns The Corner Market which he is trying to sell so that he can retire and travel. The Corner Market owns the building in which it is located. This building was built at a cost of $647,000 and is currently appraised at $819,000. The counters and fixtures originally cost $148,000 and are currently valued at $65,000. The inventory is valued on the balance sheet at $319,000 and has a retail market value equal to 1.2 times its cost. Jake expects the store to collect 98 percent of the $21,700 in accounts receivable. The firm has $26,800 in cash and has total debt of $414,700. What is the market value of this firm?
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53. | Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?
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54. | Andre's Bakery has sales of $687,000 with costs of $492,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 35 percent. What is the net income?
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55. | Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes?
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56. | Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?
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57. | The tax rates are as shown. Nevada Mining currently has taxable income of $97,800. How much additional tax will the firm owe if taxable income increases by $21,000?
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58. | Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate?
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59. | Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?
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60. | Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a combined book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?
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61. | 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?
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62. | 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?
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63. | 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?
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64. | 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?
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65. | 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?
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85. | 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?
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86. | 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 _____.
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87. | 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?
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88. | 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?
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89. | 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?
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90. | 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?
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91. | 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?
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92. | 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?
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93. | 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?
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94. | 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?
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95. | 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.
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Essay Questions
96. | 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?
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97. | As long as a firm maintains a positive cash balance, why is it essential to review the firm's cash flows?
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98. | 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.
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99. | Discuss the difference between book values and market values and explain which one is more important to the financial manager and why.
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100. | Assume you are a credit manager in charge of approving commercial loans to business firms. Identify three aspects of a firm's cash flows you would review and explain the type of information you hope to gain from reviewing each of those five aspects.
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