- Lemmon Inc. lists fixed assets of $100 on its balance sheet. The firm’s fixed assets have recently been appraised at $140. The firm’s balance sheet also lists current assets at $15. Current assets were appraised at $16.50. Current liabilities book and market values stand at $12 and the firm’s long-term debt is $40. Calculate the market value of the firm’s stockholders’ equity.
The correct answer is: $104.50
2. All of the following are cash flows associated with financing activities EXCEPT:
The correct answer is: Increase in accounts payable
3. negative free cash flows would be the biggest worry for investors of
The correct answer is: A mature company.
4. GW Inc. had $800 million in retained earnings at the beginning of the year. During the year, the firm paid $0.75 per share dividend and generated $1.92 earnings per share. The firm has 100 million shares outstanding. At the end of year, what was the level of retained earnings for GW?
The correct answer is: $917 million
5. What are the consequences of paying additional dividends?
The correct answer is: The firm will have a lower amount of internally generated cash to support firm growth.
6. The portion of a company’s profits that are kept by the company rather than distributed to the stockholders as cash dividends is referred to as _______________.
The correct answer is: Retained earnings
7. These are cash inflows and outflows associated with buying and selling of fixed or other long-term assets.
The correct answer is: Cash flows from investing activities
8. Which of the assets below is typically the most liquid?
The correct answer is: Accounts Receivable
9. All of the following are reasons that one should be cautious in interpreting financial statements EXCEPT:
The correct answer is: All of these are reasons to be cautious in interpreting financial statements.
10. For which of the following would one expect the book value of the asset to differ widely from its market value?
The correct answer is: Fixed assets
11. Assume that a company had a net income equal to $500,000, and paid out $200,000 in dividends. The balance in the retained earnings account at the beginning of the year was $800,000. What is the balance in the retained earnings account at the end of the year?
The correct answer is: $1,100,000
12. Free Cash Flow You are considering an investment in Crew Cut, Inc. and want to evaluate the firm’s free cash flow. From the income statement, you see that Crew Cut earned an EBIT of $23 million, paid taxes of $4 million, and its depreciation expense was $8 million. Crew Cut’s gross fixed assets increased by $10 million from 2007 to 2008. The firm’s current assets increased by $6 million and spontaneous current liabilities increased by $4 million. What is Crew Cut’s operating cash flow, investment in operating capital and free cash flow for 2013, respectively in millions?
The correct answer is: $27, $12, $15
13. Market Value versus Book Value Acme Bricks balance sheet lists net fixed assets as $40 million. The fixed assets could currently be sold for $50 million. Acme’s current balance sheet shows current liabilities of $15 million and net working capital of $12 million. If all the current accounts were liquidated today, the company would receive $77 million cash after paying $15 million in liabilities. What is the book value of Acme’s assets today? What is the market value of these assets?
The correct answer is: $67 million, $142 million
14. Income Statement You have been given the following information for Fina’s Furniture Corp.:
Net sales = $25,500,000;
Cost of goods sold = $10,250,000;
Addition to retained earnings = $305,000;
Dividends paid to preferred and common stockholders = $500,000;
Interest expense = $2,000,000.
The firm’s tax rate is 30 percent. What is the depreciation expense for Fina’s Furniture Corp.?
The correct answer is: $12,100,000
15. Assume a company acquires a new building for the price of $7.5 million. Using straight line depreciation, and setting the useful life of the building to 30 years, the annual depreciation expense associated with the building will be equal to
The correct answer is: $250,000.
16. Which ratio assesses how efficiently a firm uses its fixed assets?
The correct answer is: Fixed asset turnover
17. Which ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm’s debt?
The correct answer is: Times interest earned
18. Statement of Cash Flows In 2013, Upper Crust had cash flows from investing activities of ($250,000) and cash flows from financing activities of ($150,000). The balance in the firm’s cash account was $90,000 at the beginning of 2013 and $105,000 at the end of the year. What was Upper Crust’s cash flow from operations for 2013?
The correct answer is: $415,000
19. Income Statement Barnyard, Inc.’s 2013 income statement lists the following income and expenses: EBIT = $500,000, interest expense = $45,000, and taxes = $152,000. Barnyard’s has no preferred stock outstanding and 200,000 shares of common stock outstanding. What are its 2013 earnings per share?
The correct answer is: $1.515
20. Income Statement Bullseye, Inc.’s 2013 income statement lists the following income and expenses: EBIT = $900,000, interest expense = $85,000, and net income = $570,000. What are the 2013 taxes reported on the income statement?
The correct answer is: $245,000
21. Income Statement You have been given the following information for Fina’s Furniture Corp.:
Net sales = $25,500,000;
Cost of goods sold = $10,250,000;
Addition to retained earnings = $305,000;
Dividends paid to preferred and common stockholders = $500,000;
Interest expense = $2,000,000.
The firm’s tax rate is 30 percent. What is the depreciation expense for Fina’s Furniture Corp.?
The correct answer is: $12,100,000
22. Free Cash Flow Catering Corp. reported free cash flows for 2013 of $8 million and investment in operating capital of $2 million. Catering listed $1 million in depreciation expense and $2 million in taxes on its 2008 income statement. What was Catering’s 2013 EBIT?
The correct answer is: $11 million
23. Which type of ratio measures a firm’s ability to pay off short-term obligations without relying on inventory sales?
The correct answer is: Quick or acid test
24. Which of the following statements is correct?
The correct answer is: A high average payment period and a low accounts payable turnover are a sign of good management.
25. Assume inventory turnover ratio is equal to 10. What is the Days’ sales in inventory equal to?
The correct answer is: 36.5 days
26. The difference between ROE and ROA is that
The correct answer is: ROE takes into account the impact of financial leverage.
27. Which of the statements below is correct?
The correct answer is: Having a higher debt ratio is neither good nor bad.
28. Assume that company X had accounts receivable turnover equal to 12 in 2014, and equal to 14 in 2015. Further assume that the relevant industry average for this ratio is 20. Based on this information we would most likely conclude that company X
The correct answer is: Should be more careful with awarding credit to its customers, or should improve its collecting of accounts receivable..
29. Assume that companies A and B both have the same dollar value of total assets and both have return on assets equal to 16%. Further assume that company A has a return on equity also equal to 16%, while company B has a return on equity equal to 22%. Based on this information we would most likely conclude that
The correct answer is: Company B has more debt than company A.
30. Which ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm’s debt?
The correct answer is: Times interest earned
31. Which ratio measures the number of dollars of sales produced per dollar of inventory?
The correct answer is: Inventory turnover
32. Assume a company’s total asset turnover is equal to 4.75. What is the correct interpretation of this ratio?
The correct answer is: Each dollar of total assets generates $4.75 of sales.
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