Question 1

Kwok Enterprises has the following income statement.How much after-tax operating income does the firm have?   Sales $2,700 Costs 1,400 Depreciation 250 EB IT $1,050 Interest expense 70 EB T $980 Taxes (40%) 392 Net income $588\begin{array}{lr}	ext { Sales } & \$ 2,700 \	ext { Costs } & 1,400 \	ext { Depreciation } & 250 \	ext { EB IT } & \$ 1,050 \	ext { Interest expense } & 70 \	ext { EB T } & \$ 980 \	ext { Taxes }(40 \%)  & 392 \	ext { Net income } & \$ 588 \\hline\end{array} Sales  Costs  Depreciation  EB IT  Interest expense  EB T  Taxes (40%)  Net income ​$2,7001,400250$1,05070$980392$588​​ 
?

Accepted Answer

A)   $630
B)   $643
C)   $605
D)   $743
E)   $504 F) A) and B)
G) None of the above

Question 2

Both interest and dividends paid by a corporation are deductible operating expenses,hence they decrease the firm's taxes.

Accepted Answer

A) True 
 B)False

Question 3

Carter Corporation has some money to invest,and its treasurer is choosing between City of Chicago municipal bonds and U.S.Treasury bonds.Both have the same maturity,and they are equally risky and liquid.If Treasury bonds yield 6.00%,and Carter's marginal income tax rate is 15.00%,what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?

Accepted Answer

A)   4.79%
B)   4.74%
C)   5.10%
D)   5.61%
E)   6.38%F) B) and C)
G) C) and D)

Question 4

?Assume that two firms are both following generally accepted accounting principles.Both firms commenced operations two years ago with $1 million of identical fixed assets,and neither firm sold any of those assets or purchased any new fixed assets.The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.

Accepted Answer

A) True 
 B)False

Question 5

Lovell Co.purchased preferred stock in another company.The preferred stock's before-tax yield was 9.00%.The corporate tax rate is 40%.What is the after-tax return on the preferred stock,assuming a 70% dividend exclusion? (Round your final answer to two decimal places. )

Accepted Answer

A)   7.92%
B)   6.73%
C)   6.57%
D)   7.05%
E)   8.87%F) All of the above
G) B) and E)

Question 6

A loss incurred by a corporation

Accepted Answer

A)   must be carried forward unless the company has had 2 loss years in a row.
B)   can be carried back 2 years,then carried forward up to 20 years following the loss.
C)   can be carried back 5 years and forward 3 years.
D)   cannot be used to reduce taxes in other years except with special permission from the IRS.
E)   can be carried back 3 years or forward 10 years,whichever is more advantageous to the firm.F) A) and E)
G) A) and C)

Question 7

In finance,we are generally more interested in cash flows than in accounting profits.Free cash flow (FCF)is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital.​

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is CORRECT?

Accepted Answer

A)   Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net operating working capital.
B)   Changes in working capital have no effect on free cash flow.
C)   Free cash flow (FCF) is defined as follows:FCF = EBIT(1 - T) + Depreciation- Capital expenditures required to sustain operations- Required changes in net operating working capital.
D)   Free cash flow (FCF) is defined as follows:FCF = EBIT(1 - T) + Capital expenditures.
E)   Managers should be less concerned with free cash flow than with accounting net income.Accounting net income is the "bottom line" and represents how much the firm can distribute to all its investors-both creditors and stockholders.F) None of the above
G) A) and B)

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)   Dividends paid reduce the net income that is reported on a company's income statement.
B)   If a company uses some of its bank deposits to buy short-term,highly liquid marketable securities,its current assets as shown on the balance sheet will decline.
C)   If a company issues new long-term bonds to purchase fixed assets during the current year,its reported current assets and current liabilities at the end of the year will increase.
D)   Accounts receivable are reported as a current liability on the balance sheet.
E)   If a company pays more in dividends than it generates in net income,its retained earnings as reported on the balance sheet will decline from the previous year's balance.F) A) and E)
G) None of the above

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)   Corporations are allowed to exclude 70% of their interest income from corporate taxes.
B)   Corporations are allowed to exclude 70% of their dividend income from corporate taxes.
C)   Individuals pay taxes on only 30% of the income realized from municipal bonds.
D)   Individuals are allowed to exclude 70% of their interest income from their taxes.
E)   Individuals are allowed to exclude 70% of their dividend income from their taxes.F) A) and B)
G) A) and C)

Question 11

Other things held constant,which of the following actions would increase the amount of cash on a company's balance sheet?

Accepted Answer

A)   The company repurchases common stock.
B)   The company pays a dividend.
C)   The company issues new common stock.
D)   The company gives customers more time to pay their bills.
E)   The company purchases a new piece of equipment.F) C) and D)
G) B) and E)

Question 12

Free cash flow is the amount of cash that,if withdrawn,would harm the firm's ability to operate and to produce future cash flows.

Accepted Answer

A) True 
 B)False

Question 13

Two metrics that are used to measure a company's financial performance are net income and cash flow.Accountants emphasize net income as calculated in accordance with generally accepted accounting principles.Finance people generally put at least as much weight on cash flows as they do on net income.

Accepted Answer

A) True 
 B)False

Question 14

Maureen Smith is a single individual.She claims one exemption of $4,050 for herself and claims a standard deduction of $6,350.Her salary for the year was $71,850.Assume the following tax table is applicable.
?
Single Individuals
?   You Pay This  Plus This Percentage  Average Tax  If Your Taxable  Amount on the  on the Excess over the  Rate at  Income Is  Base of the Bracket  Base  Top of Bracket  Up to $9,325$0.0010.0%10.0%$9,325−$37,950932.5015.013.8$37,950−$91,9005,226.2525.020.4$91,900−$191,65018,713.7528.024.3$191,650−$416,70046,643.7533.029.0$416,700−$418,400120,910.2535.029.0 Over $418,400121,505.2539.639.6\begin{array}{lccc} & 	ext { You Pay This } & 	ext { Plus This Percentage } & 	ext { Average Tax } \	ext { If Your Taxable } & 	ext { Amount on the } & 	ext { on the Excess over the } & 	ext { Rate at } \	ext { Income Is } & 	ext { Base of the Bracket } & 	ext { Base } & 	ext { Top of Bracket } \\hline	ext { Up to } \$ 9,325 & \$ 0.00 & 10.0 \% & 10.0 \% \\$ 9,325-\$ 37,950 & 932.50 & 15.0 & 13.8 \\$ 37,950-\$ 91,900 & 5,226.25 & 25.0 & 20.4 \\$ 91,900-\$ 191,650 & 18,713.75 & 28.0 & 24.3 \\$ 191,650-\$ 416,700 & 46,643.75 & 33.0 & 29.0 \\$ 416,700-\$ 418,400 & 120,910.25 & 35.0 & 29.0 \	ext { Over } \$ 418,400 & 121,505.25 & 39.6 & 39.6\end{array} If Your Taxable  Income Is  Up to $9,325$9,325−$37,950$37,950−$91,900$91,900−$191,650$191,650−$416,700$416,700−$418,400 Over $418,400​ You Pay This  Amount on the  Base of the Bracket $0.00932.505,226.2518,713.7546,643.75120,910.25121,505.25​ Plus This Percentage  on the Excess over the  Base 10.0%15.025.028.033.035.039.6​ Average Tax  Rate at  Top of Bracket 10.0%13.820.424.329.029.039.6​​ 
?
What is her average tax rate?
?

Accepted Answer

A)   19.87%
B)   14.63%
C)   17.70%
D)   18.07%
E)   19.33% F) B) and E)
G) A) and B)

Question 15

Maureen Smith is a single individual.She claims one exemption of $4,050 for herself and claims a standard deduction of $6,350.Her salary for the year was $68,800.What is her taxable income?
?

Accepted Answer

A)   $53,728
B)   $58,400
C)   $44,384
D)   $43,800
E)   $56,064F) C) and D)
G) B) and D)

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)   Assume that two firms are both following generally accepted accounting principles.Both firms commenced operations two years ago with $1 million of identical fixed assets,and neither firm either sold any of those assets or purchased any new fixed assets.The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
B)   Assets other than cash are expected to produce cash over time,and the amount of cash they eventually produce must be the same as the amounts at which the assets are carried on the books.
C)   The income statement shows the difference between a firm's income and its costs-i.e. ,its profits-during a specified period of time.However,all reported income comes in the form of cash,and reported costs likewise are consistent with cash outlays.Therefore,there will not be a substantial difference between a firm's reported profits and its actual cash flow for the same period.
D)   The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends and the riskiness of those cash flows.
E)   EPS stands for "earnings per share," while DPS stands for "dividends per share." We would normally expect to see DPS exceed EPS.F) B) and E)
G) A) and E)

Question 17

Net operating working capital is equal to current assets less excess cash minus the difference between current liabilities and notes payable.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A)   Retained earnings,as reported on the balance sheet,represent the amount of cash a company has available to pay out as dividends to shareholders.
B)   70% of the interest received by corporations is excluded from taxable income.
C)   70% of the dividends received by corporations is excluded from taxable income.
D)   Because taxes on long-term capital gains are not paid until the gain is realized,investors must pay the top individual tax rate on that gain.
E)   The corporate tax system favors equity financing,as dividends paid are deductible from corporate taxes.F) A) and E)
G) B) and C)

Question 19

The income statement shows the difference between a firm's income and its costs-i.e. ,its profits-during a specified period of time.However,not all reported income comes in the form of cash,and reported costs likewise may not be consistent with cash outlays.Therefore,there may be a substantial difference between a firm's reported profits and its actual cash flow for the same period.

Accepted Answer

A) True 
 B)False

Question 20

West Corporation has $50,000 that it plans to invest in marketable securities.The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 8.50%;Exxon Mobil bonds yielding 10.50%;and GM preferred stock with a dividend yield of 9.25%.West's corporate tax rate is 32.00%.What is the after-tax return on the best investment alternative? Assume a 70.00% dividend exclusion for tax on dividends.(Assume the company chooses on the basis of after-tax returns.Round your final answer to 3 decimal places. )

Accepted Answer

A)   9.690%
B)   7.820%
C)   8.585%
D)   8.500%
E)   10.625%F) A) and C)
G) A) and D)

Exam 3: Financial Statements,cash Flow and Taxes

Both interest and dividends paid by a corporation are deductible operating expenses,hence they decrease the firm's taxes.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Net operating working capital is equal to current assets less excess cash minus the difference between current liabilities and notes payable.

Correct Answer
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Two metrics that are used to measure a company's financial performance are net income and cash flow.Accountants emphasize net income as calculated in accordance with generally accepted accounting principles.Finance people generally put at least as much weight on cash flows as they do on net income.

Correct Answer
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A loss incurred by a corporation

Correct Answer
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In finance,we are generally more interested in cash flows than in accounting profits.Free cash flow (FCF)is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Lovell Co.purchased preferred stock in another company.The preferred stock's before-tax yield was 9.00%.The corporate tax rate is 40%.What is the after-tax return on the preferred stock,assuming a 70% dividend exclusion? (Round your final answer to two decimal places. )

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Maureen Smith is a single individual.She claims one exemption of $4,050 for herself and claims a standard deduction of $6,350.Her salary for the year was $68,800.What is her taxable income? ?

Correct Answer
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Correct Answer
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Free cash flow is the amount of cash that,if withdrawn,would harm the firm's ability to operate and to produce future cash flows.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Other things held constant,which of the following actions would increase the amount of cash on a company's balance sheet?

Correct Answer
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Exam 3: Financial Statements,cash Flow and Taxes

Both interest and dividends paid by a corporation are deductible operating expenses,hence they decrease the firm's taxes.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Net operating working capital is equal to current assets less excess cash minus the difference between current liabilities and notes payable.

Correct AnswerverifiedShow Answer

Two metrics that are used to measure a company's financial performance are net income and cash flow.Accountants emphasize net income as calculated in accordance with generally accepted accounting principles.Finance people generally put at least as much weight on cash flows as they do on net income.

Correct AnswerverifiedShow Answer

A loss incurred by a corporation

Correct AnswerverifiedShow Answer

In finance,we are generally more interested in cash flows than in accounting profits.Free cash flow (FCF)is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital.​

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Lovell Co.purchased preferred stock in another company.The preferred stock's before-tax yield was 9.00%.The corporate tax rate is 40%.What is the after-tax return on the preferred stock,assuming a 70% dividend exclusion? (Round your final answer to two decimal places. )

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Maureen Smith is a single individual.She claims one exemption of $4,050 for herself and claims a standard deduction of $6,350.Her salary for the year was $68,800.What is her taxable income? ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Free cash flow is the amount of cash that,if withdrawn,would harm the firm's ability to operate and to produce future cash flows.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Other things held constant,which of the following actions would increase the amount of cash on a company's balance sheet?

Correct AnswerverifiedShow Answer

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In finance,we are generally more interested in cash flows than in accounting profits.Free cash flow (FCF)is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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