Question 1

Inc.reported $12,500 of sales and $7,025 of operating costs The company had $18,750 of investor-supplied operating assets (or capital) , the weighted average cost of that capital (the WACC)  was 9.5%, and the federal-plus-state income tax rate was 40%.What was HHH's Economic Value Added (EVA) , i.e., how much value did management add to stockholders' wealth during the year?

Accepted Answer

A)  $1,357.13
B)  $1,428.56
C)  $1,503.75
D)  $1,578.94
E)  $1,657.88F) C) and E)
G) B) and E)

Question 2

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)  x (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) B) and C)
G) A) and C)

Question 3

Swinnerton Clothing Company's balance sheet showed total current assets of $2,250, all of which were required in operations.Its current liabilities consisted of $575 of accounts payable, $300 of 6% short-term notes payable to the bank, and $145 of accrued wages and taxes.What was its net operating working capital that was financed by investors?

Accepted Answer

A)  $1,454
B)  $1,530
C)  $1,607
D)  $1,687
E)  $1,771F) A) and B)
G) C) and E)

Question 4

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

Accepted Answer

A)  Accounts payable.
B)  Short-term notes payable to the bank.
C)  Accrued wages.
D)  Cost of goods sold.
E)  Accrued payroll taxes.F) C) and E)
G) B) and E)

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)  The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes.Thus, the federal government receives no tax revenue from these businesses.
B)  All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code.
C)  Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm's income as personal income and pay taxes on that income.
D)  Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes.Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the income and stockholders were taxed again on the income when it was paid to them as dividends.
E)  All corporations other than non-profit corporations are subject to corporate income taxes, which are 15% for the lowest amounts of income and 35% for the highest amounts of income.F) A) and C)
G) None of the above

Question 6

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Accepted Answer

A) True 
 B)False

Question 7

Tibbs Inc.had the following data for the year ending 12/31/07: Net income = $300; Net operating profit after taxes (NOPAT)  = $400; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,300.What was its return on invested capital (ROIC) ?

Accepted Answer

A)  14.91%
B)  15.70%
C)  16.52%
D)  17.39%
E)  18.26%F) C) and D)
G) A) and E)

Question 8

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 or cash, and reported costs likewise may not correctly reflect 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 9

Inc.recently reported net income of $4,750 and depreciation of $885.How much was its net cash flow, assuming it had no amortization expense and sold none of its fixed assets.

Accepted Answer

A)  $4,831.31
B)  $5,085.59
C)  $5,353.25
D)  $5,635.00
E)  $5,916.75F) A) and B)
G) A) and C)

Question 10

Which of the following factors could explain why Dellva Energy had a negative net cash flow last year, even though the cash on its balance sheet increased?

Accepted Answer

A)  The company sold a new issue of bonds.
B)  The company made a large investment in new plant and equipment.
C)  The company paid a large dividend.
D)  The company had high amortization expenses.
E)  The company repurchased 20% of its common stock.F) A) and B)
G) None of the above

Question 11

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

Accepted Answer

A)  $370.60
B)  $390.11
C)  $410.64
D)  $432.25
E)  $455.00F) C) and E)
G) A) and B)

Question 12

Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

Accepted Answer

A) True 
 B)False

Question 13

managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP)  are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations.Related to these modifications, which of the following statements is CORRECT?

Accepted Answer

A)  The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
B)  The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period.However, for valuation purposes we need to discount cash flows, not accounting income.Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed.These factors have led to the development of information that is focused on cash flows and the operations of individual units.
C)  The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide.
D)  The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.
E)  The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm.Thus, under GAAP, there is no room for accountants to "adjust" the results to make earnings look better.F) A) and C)
G) B) and C)

Question 14

Which of the following statements is CORRECT?

Accepted Answer

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

Question 15

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) B) and E)
G) A) and D)

Exam 2: Statements, CF, Taxes

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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Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

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

Correct Answer
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Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Correct Answer
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Which of the following items cannot be found on a firm's balance sheet under current liabilities?

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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Inc.recently reported net income of $4,750 and depreciation of $885.How much was its net cash flow, assuming it had no amortization expense and sold none of its fixed assets.

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 factors could explain why Dellva Energy had a negative net cash flow last year, even though the cash on its balance sheet increased?

Correct Answer
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Correct Answer
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Exam 2: Statements, CF, Taxes

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.This treatment, other things held constant, tends to encourage the use of debt financing by corporations.

Correct AnswerverifiedShow Answer

Which of the following items cannot be found on a firm's balance sheet under current liabilities?

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

Inc.recently reported net income of $4,750 and depreciation of $885.How much was its net cash flow, assuming it had no amortization expense and sold none of its fixed assets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following factors could explain why Dellva Energy had a negative net cash flow last year, even though the cash on its balance sheet increased?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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