Question 1

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 40%. How much was Lindley's operating income, or EBIT?

Accepted Answer

A)   $3,462
B)   $3,644
C)   $3,836
D)   $4,038
E)   $4,250F) B) and C)
G) C) and D)

Question 2

During the year, Bascom Bakery Inc. paid out $21,750 of common dividends. 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) A) and E)
G) D) and E)

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   The more depreciation a firm reports, the higher its tax bill, other things held constant.
B)   People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line."
C)   Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.
D)   Net cash flow (NCF)  is often defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges.
E)   Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits.F) All of the above
G) B) and D)

Question 4

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 5

A good bit of relatively simple arithmetic is involved in some of these problems, and although the calculations are simple, it will take students some time to set up the problem and do the arithmetic. We allow for this when assigning problems for a timed test. Also, students must use a number of definitions to answer some of the questions, and to avoid excessive memorization, we provide students with a list of formulas and definitions for use on exams.
-Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?

Accepted Answer

A)   $27.50
B)   $28.88
C)   $30.32
D)   $31.83
E)   $33.43F) A) and B)
G) A) and C)

Question 6

NNR Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets. All of these assets were required in operations. The firm's current liabilities consisted of $475,000 of accounts payable, $375,000 of 6% short-term notes payable to the bank, and $150,000 of accrued wages and taxes. Its remaining capital consisted of long-term debt and common equity. What was NNR's total investor-provided operating capital?

Accepted Answer

A)   $4,694,128
B)   $4,941,188
C)   $5,201,250
D)   $5,475,000
E)   $5,748,750F) C) and D)
G) A) and E)

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) All of the above
G) B) and C)

Question 8

On the balance sheet, total assets must always equal total liabilities and equity.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Statements, Cash Flow, and Taxes

Correct Answer
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On the balance sheet, total assets must always equal total liabilities and equity.

Correct Answer
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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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Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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During the year, Bascom Bakery Inc. paid out $21,750 of common dividends. 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
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Exam 2: Financial Statements, Cash Flow, and Taxes

Correct AnswerverifiedShow Answer

On the balance sheet, total assets must always equal total liabilities and equity.

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

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During the year, Bascom Bakery Inc. paid out $21,750 of common dividends. 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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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