Question 1

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?

Accepted Answer

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

Question 2

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) A) and B)
G) C) and D)

Question 3

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 4

Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's operating net cash flow increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?

Accepted Answer

A)   The company cut its dividend.
B)   The company made a large investment in a profitable new plant.
C)   The company sold a division and received cash in return.
D)   The company issued new common stock.
E)   The company issued new long-term debt.F) C) and D)
G) All of the above

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

The CFO of Shalit Industries plans to have the company issue $300 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?

Accepted Answer

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

Question 7

Which of the following items is NOT included in current assets?

Accepted Answer

A)   Accounts receivable.
B)   Inventory.
C)   Bonds.
D)   Cash.
E)   Short-term, highly liquid, marketable securities.F) C) and D)
G) A) and D)

Question 8

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?

Accepted Answer

A)   $3,284.75
B)   $3,457.63
C)   $3,639.61
D)   $3,831.17
E)   $4,032.81F) All of the above
G) A) and D)

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)   Typically, a firm's DPS should exceed its EPS.
B)   Typically, a firm's EBIT should exceed its EBITDA.
C)   If a firm is more profitable than average (e.g., Google) , we would normally expect to see its stock price exceed its book value perShare.
D)   If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stockPrice, especially after several years of high inflation.
E)   The more depreciation a firm has in a given year, the higher its EPS, other things held constant.F) None of the above
G) C) and D)

Question 10

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

Accepted Answer

A)   $81.23
B)   $85.50
C)   $90.00
D)   $94.50
E)   $99.23F) A) and C)
G) A) and B)

Question 11

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 E)
G) All of the above

Question 12

Bae 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 E)

Question 13

Hunter Manufacturing Inc.'s December 31, 2009 balance sheet showed total common equity of $2,050,000 and 100,000 shares of stock outstanding. During 2010, Hunter had $250,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/10, assuming that Hunter neither issued nor retired any common stock during 2010?

Accepted Answer

A)   $20.90
B)   $22.00
C)   $23.10
D)   $24.26
E)   $25.47F) B) and D)
G) A) and B)

Question 14

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 isOften 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 netCash 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 ofThem has an effect on a firm's reported profits.F) A) and B)
G) All of the above

Exam 2: Financial Statements, Cash Flow, and Taxes

Which of the following statements is CORRECT?

Correct Answer
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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.

Correct Answer
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Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's operating net cash flow increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?

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

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

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Which of the following items is NOT included in current assets?

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

Correct Answer
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Which of the following statements is CORRECT?

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Exam 2: Financial Statements, Cash Flow, and Taxes

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's operating net cash flow increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?

Correct AnswerverifiedShow Answer

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

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 items cannot be found on a firm's balance sheet under current liabilities?

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Correct AnswerverifiedShow Answer

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Which of the following items is NOT included in current assets?

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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