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Exam 2: Financial Statements, Taxes, and Cash Flow

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Question 51

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The Good Life Store has sales of $79,600. The cost of goods sold is $48,200 and the other costs are $18,700. Depreciation is $8,300 and the tax rate is 34 percent. What is the net income?

A) $2,904
B) $8,382
C) $11,204
D) $14,660
E) $16,682

F) A) and E)
G) All of the above

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Question 52

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An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

A) Fixed expenses
B) Interest paid
C) Net capital spending
D) Inventory
E) Depreciation

F) B) and E)
G) D) and E)

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Question 53

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Gorman Distributors shows the following information on its 2010 income statement: sales = $317,800; costs = $211,400; other expenses = $18,500; depreciation expense = $31,200; interest expense = $2,100; taxes = $18,600; dividends = $12,000. In addition, you're told that the firm issued $4,500 in new equity during 2010, and redeemed $6,500 in outstanding long-term debt. If net fixed assets increased by $7,400 during the year, what was the addition to net working capital?

Which one of the following will decrease the liquidity level of a firm?

Pitt Metal Works had $87,600 in net fixed assets at the beginning of the year. During the year, the company purchased $6,400 in new equipment. It also sold, at a price of $2,300, some old equipment with a book value of $1,100. The depreciation expense for the year was $4,700. What is the net fixed asset balance at the end of the year?

Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant?

The balance sheet of Retailers, Inc. has the following balances: What is the amount of the change in net working capital?

The corporate tax structure in the U.S. is based on a:

Which one of the following relates to a negative change in net working capital?

The balance sheet of a firm shows beginning net fixed assets of $348,200 and ending net fixed assets of $371,920. The depreciation expense for the year is $46,080 and the interest expense is $11,460. What is the amount of the net capital spending?

The accounting statement which measures the revenues, expenses, and net income of a firm over a period of time is called the:

Six months ago, Altman Metal Works repurchased $20,000 of its common stock. The company pays regular quarterly dividends totaling $7,500 per quarter. What is the amount of the cash flow to stockholders for the past year if no additional shares were issued?

During the year, The Dalton Firm had sales of $3,210,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $2,540,000, $389,000, and $112,000, respectively. In addition, the company had an interest expense of $118,000 and a tax rate of 34 percent. (Ignore any tax loss carryback or carryforward provisions) . What is its operating cash flow?

Explain why the marginal tax rate, rather than the average tax rate, is used when computing the cash flows from a proposed new project.

Which is more important from a finance perspective---net income or operating cash flow? What is the difference between these two values?

Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?

Delivery trucks are classified as:

The Paper Moon has an operating cash flow of $187,000 and a cash flow to creditors of $61,400 for the past year. During that time, the firm invested $28,000 in net working capital and incurred net capital spending of $48,900. What is the amount of the cash flow to stockholders for the last year?

The market value of a firm's fixed assets:

Which one of the following has nearly the same meaning as free cash flow?