FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 2: Financial Statements, Cash Flow, and Taxes

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

Olivia Hardison, CFO of Impact United Athletic Designs, plans to have the company issue $500 million of new common stock and use the proceeds to pay off some of its outstanding bonds.Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT) , and its tax rate all remain constant.Which of the following would occur?

A) The company would have to pay less taxes.
B) The company's taxable income would fall.
C) The company's interest expense would remain constant.
D) The company would have less common equity than before.
E) The company's net income would increase.

F) B) and D)
G) None of the above

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is CORRECT?

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

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%.How much was the firm's taxable income, or earnings before taxes (EBT) ?

Over the years, Janjigian Corporation's stockholders have provided $15,250 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the firm's earnings.The firm now has 1,000 shares of common stock outstanding, and it sells at a price of $42.00 per share.How much value has Janjigian's management added to stockholder wealth over the years, i.e., what is Janjigian's MVA?

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.

Analysts following Armstrong Products recently noted that the company's net cash flow from operations increased over the prior year, yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Which of the following statements is CORRECT?

HHH Inc.reported $12,500 of sales and $7,025 of operating costs (including depreciation) .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 25%.What was HHH's Economic Value Added (EVA) , i.e., how much value did management add to stockholders' wealth during the year?

The fact that 50% 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.

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?

The time dimension is important in financial statement analysis.The balance sheet shows the firm's financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects changes in the firm's accounts over that period of time.

The retained earnings account on the balance sheet does not represent cash.Rather, it represents part of stockholders' claims against the firm's existing assets.This implies that retained earnings are in fact stockholders' reinvested earnings.

The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time, while the income statement measures the firm's financial position at a point in time.

Which of the following statements is CORRECT?

Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income.Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%.How much was Lindley's operating income, or EBIT?

On 12/31/2020, 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 12/31/2019, the company had reported $555,000 of retained earnings.No shares were repurchased during 20205.How much in dividends did Heaton pay during 2020?

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 25%.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 to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.

Which of the following statements is CORRECT?

The LeMond Corporation just purchased a new production line.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Barnes' Brothers has the following data for the year ending 12/31/2015: Net income = $600; Net operating profit after taxes (NOPAT) = $700; Total assets = $2,500; Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,100.Barnes' weighted average cost of capital is 10%.What is its economic value added (EVA) ?