Question 1

The current cash flow from existing assets is highly relevant to the investor.However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)   A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last.
B)   The balance sheet for a given year, say 2012, is designed to give us an idea of what happened to the firm during that year.
C)   The balance sheet for a given year, say 2012, tells us how much money the company earned during that year.
D)   The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP) .
E)   For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet.F) B) and D)
G) B) and C)

Question 3

Below is the common equity section (in millions) of Fethe Industries' last two year-end balance sheets:

The company has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Accepted Answer

A)   The company's net income in 2011 was higher than in 2012.
B)   The company issued common stock in 2012.
C)   The market price of the company's stock doubled in 2012.
D)   The company had positive net income in both 2011 and 2012, but the company's net income in 2009 was lower than it was in 2011.
E)   The company has more equity than debt on its balance sheet.F) C) and D)
G) A) and C)

Question 4

Hunter Manufacturing Inc.'s December 31, 2012, balance sheet showed total common equity of $2, 050, 000 and 100, 000 shares of stock outstanding.During 2013, Hunter had $250, 000 of net income, and it paid out $100, 000 as dividends.What was the book value per share at 12/31/13, assuming that Hunter neither issued nor retired any common stock during 2013?

Accepted Answer

A)   $20.90
B)   $22.00
C)   $23.10
D)   $24.26
E)   $25.47F) B) and D)
G) C) and D)

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)   The more depreciation a firm has in a given year, the higher its EPS, other things held constant.
B)   Typically, a firm's DPS should exceed its EPS.
C)   Typically, a firm's EBIT should exceed its EBITDA.
D)   If a firm is more profitable than average (e.g., Google) , we would normally expect to see its stock price exceed its book value per share.
E)   If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.F) None of the above
G) C) and E)

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)   If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative.
B)   Since depreciation is a source of funds, the more depreciation a company has, the larger its retained earnings will be, other things held constant.
C)   A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments.
D)   Common equity includes common stock and retained earnings, less accumulated depreciation.
E)   The retained earnings account as shown on the balance sheet shows the amount of cash that is available for paying dividends.F) A) and C)
G) A) and B)

Question 7

The fact that 70% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision.

Accepted Answer

A) True 
 B)False

Question 8

Last year, Michelson Manufacturing reported $10, 250 of sales, $3, 500 of operating costs other than depreciation, and $1, 250 of depreciation.The company had no amortization charges, it had $3, 500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%.This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $725.By how much will the depreciation change cause the firm's net after-tax income and its net cash flow to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.

Accepted Answer

A)   -$383.84; $206.68
B)   -$404.04; $217.56
C)   -$425.30; $229.01
D)   -$447.69; $241.06
E)   -$471.25; $253.75F) All of the above
G) D) and E)

Question 9

The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 10

Net operating profit after taxes (NOPAT)is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
B)   Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
C)   In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
D)   In the statement of cash flows, depreciation charges are reported as a use of cash.
E)   In the statement of cash flows, a decrease in inventories is reported as a use of cash.F) B) and E)
G) C) and D)

Question 12

Which of the following statements is CORRECT?

Accepted Answer

A)   The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.
B)   MVA gives us an idea about how much value a firm's management has added during the last year.
C)   MVA stands for market value added, and it is defined as follows:MVA = (Shares outstanding) (Stock price) + Book value of common equity.
D)   EVA stands for economic value added, and it is defined as follows:EVA = EBIT(1 - T) - (Investor-supplied op.capital) ´ (A - T cost of capital) .
E)   EVA gives us an idea about how much value a firm's management has added over the firm's life.F) A) and C)
G) A) and D)

Question 13

Which of the following items is NOT included in current assets?

Accepted Answer

A)   Short-term, highly liquid, marketable securities.
B)   Accounts receivable.
C)   Inventory.
D)   Bonds.
E)   Cash.F) All of the above
G) D) and E)

Question 14

To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Accepted Answer

A) True 
 B)False

Question 15

EP Enterprises has the following income statement.How much net operating profit after taxes (NOPAT) does the firm have?

Accepted Answer

A)   $81.23
B)   $85.50
C)   $90.00
D)   $94.50
E)   $99.23F) A) and D)
G) A) and E)

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)   The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.
B)   The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders' equity.
C)   The balance sheet gives us a picture of the firm's financial position at a point in time.
D)   The income statement gives us a picture of the firm's financial position at a point in time.
E)   The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.F) A) and E)
G) A) and D)

Question 17

If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant.

Accepted Answer

A) True 
 B)False

Question 18

On 12/31/2013, Heaton Industries Inc.reported retained earnings of $675, 000 on its balance sheet, and it reported that it had $172, 500 of net income during the year.On its previous balance sheet, at 12/31/2012, the company had reported $555, 000 of retained earnings.No shares were repurchased during 2013.How much in dividends did Heaton pay during 2013?

Accepted Answer

A)   $47, 381
B)   $49, 875
C)   $52, 500
D)   $55, 125
E)   $57, 881F) A) and E)
G) B) and E)

Question 19

Ullrich Printing Inc.paid out $21, 750 of common dividends during the year.It ended the year with $187, 500 of retained earnings versus the prior year's retained earnings of $132, 250.How much net income did the firm earn during the year?

Accepted Answer

A)   $77, 000
B)   $80, 850
C)   $84, 893
D)   $89, 137
E)   $93, 594F) B) and C)
G) C) and D)

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A)   The statement of cash flows shows how much the firm's cash¾the total of currency, bank deposits, and short-term liquid securities (or cash equivalents) ¾increased or decreased during a given year.
B)   The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets.
C)   The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit.
D)   The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital.
E)   The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock.F) B) and D)
G) D) and E)

Exam 2: Financial statements, cash flow, and taxes

Correct Answer
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Below is the common equity section (in millions) of Fethe Industries' last two year-end balance sheets: The company has never paid a dividend to its common stockholders.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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Which of the following statements is CORRECT?

Correct Answer
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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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EP Enterprises has the following income statement.How much net operating profit after taxes (NOPAT) does the firm have?

Correct Answer
verified

The fact that 70% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision.

Correct Answer
verified

Net operating profit after taxes (NOPAT)is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

Correct Answer
verified

To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Correct Answer
verified

Which of the following items is NOT included in current assets?

Correct Answer
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Ullrich Printing Inc.paid out $21, 750 of common dividends during the year.It ended the year with $187, 500 of retained earnings versus the prior year's retained earnings of $132, 250.How much net income did the firm earn during the year?

Correct Answer
verified

If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

The current cash flow from existing assets is highly relevant to the investor.However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Exam 2: Financial statements, cash flow, and taxes

Correct AnswerverifiedShow Answer

Below is the common equity section (in millions) of Fethe Industries' last two year-end balance sheets: The company has never paid a dividend to its common stockholders.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

EP Enterprises has the following income statement.How much net operating profit after taxes (NOPAT) does the firm have?

Correct AnswerverifiedShow Answer

The fact that 70% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision.

Correct AnswerverifiedShow Answer

Net operating profit after taxes (NOPAT)is the amount of net income a company would generate from its operations if it had no interest income or interest expense.

Correct AnswerverifiedShow Answer

To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Correct AnswerverifiedShow Answer

Which of the following items is NOT included in current assets?

Correct AnswerverifiedShow Answer

Ullrich Printing Inc.paid out $21, 750 of common dividends during the year.It ended the year with $187, 500 of retained earnings versus the prior year's retained earnings of $132, 250.How much net income did the firm earn during the year?

Correct AnswerverifiedShow Answer

If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The current cash flow from existing assets is highly relevant to the investor.However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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