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Exam 2: Financial statements, cash flow, and taxes

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Question 31

True/False

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Consider the balance sheet of Wilkes Industries as shown below.Because Wilkes has $800, 000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200, 000.

A) True
B) False

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Question 32

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On its 2012 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year in 2013.Assuming that no earnings restatements were issued, which of the following statements is CORRECT?

A) Dividends could have been paid in 2013, but they would have had to equal the earnings for the year.
B) If the company lost money in 2013, they must have paid dividends.
C) The company must have had zero net income in 2013.
D) The company must have paid out half of its earnings as dividends.
E) The company must have paid no dividends in 2013.

F) C) and E)
G) B) and D)

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Question 33

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Bartling Energy Systems recently reported $9, 250 of sales, $5, 750 of operating costs other than depreciation, and $700 of depreciation.The company had no amortization charges, it had $3, 200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%.In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1, 250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital.By how much did the firm's net income exceed its free cash flow?

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.

Below are the year-end balance sheets for Wolken Enterprises: Wolken has never paid a dividend on its common stock, and it issued $2, 400, 000 of 10-year non-callable, long-term debt in 2012.As of the end of 2013, none of the principal on this debt had been repaid.Assume that the company's sales in 2012 and 2013 were the same.Which of the following statements must be CORRECT?

In accounting, emphasis is placed on determining net income in accordance with generally accepted accounting principles.In finance, the primary emphasis is also on net income because that is what investors use to value the firm.However, a secondary financial consideration is cash flow, because cash is needed to operate the business.

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 40%.What was HHH's Economic Value Added (EVA) , i.e., how much value did management add to stockholders' wealth during the year?

Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet.Which of the following factors could explain this situation?

Last year Tiemann Technologies reported $10, 500 of sales, $6, 250 of operating costs other than depreciation, and $1, 300 of depreciation.The company had no amortization charges, it had $5, 000 of bonds 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 $750.By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.

Edwards Electronics recently reported $11, 250 of sales, $5, 500 of operating costs other than depreciation, and $1, 250 of depreciation.The company had no amortization charges, it had $3, 500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%.How much was its net cash flow?

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?

Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

Which of the following statements is CORRECT?

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?

Which of the following statements is CORRECT?

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?

Zumbahlen Inc.has the following balance sheet.How much total operating capital does the firm have?

Assume that Congress recently passed a provision that will enable Barton's Rare Books (BRB) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate.Prior to the new provision, BRB's net income after taxes was forecasted to be $4 million.Which of the following best describes the impact of the new provision on BRB's financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

Which of the following statements is CORRECT?

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