A) $4,809,874
B) $5,063,025
C) $5,329,500
D) $5,610,000
E) $5,890,500
G) A) and E)
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A) 8.500%
B) 8.925%
C) 9.371%
D) 9.840%
E) 10.332%
G) A) and B)
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A) Assume that two firms are both following generally accepted accounting principles. Both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm either sold any of those assets or purchased any new fixed assets. The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
B) Assets other than cash are expected to produce cash over time, and the amount of cash they eventually produce must be the same as the amounts at which the assets are carried on the books.
C) The income statement shows the difference between a firm's income and its costs (i.e., its profits) during a specified period of time. However, all reported income comes in the form of cash, and reported costs likewise are consistent with cash outlays. Therefore, there will not be a substantial difference between a firm's reported profits and its actual cash flow for the same period.
D) 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.
E) EPS stands for earnings per share, while DPS stands for dividends per share. We would normally expect to see DPS exceed EPS.
G) A) and E)
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A) 3.42%
B) 3.60%
C) 3.78%
D) 3.97%
E) 4.17%
G) A) and B)
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A) The balance sheet for a given year is designed to give us an idea of what happened to the firm during that year.
B) The balance sheet for a given year tells us how much money the company earned during that year.
C) The difference between the total assets reported on the balance sheet and the liabilities reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP) .
D) If a company's statements were prepared in accordance with generally accepted accounting principles (GAAP) , the market value of the stock equals the book value of the stock as reported on the balance sheet.
E) The assets section of a typical company's balance sheet begins with cash, then lists the assets in the order in which they will probably be converted to cash, with the longest lived assets listed last.
G) A) and C)
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A) $160,000
B) $168,000
C) $176,400
D) $185,220
E) $194,481
G) B) and D)
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A) −$383.84; $206.68
B) −$404.04; $217.56
C) −$425.30; $229.01
D) −$447.69; $241.06
E) −$471.25; $253.75
G) B) and C)
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B) False
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B) False
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A) Corporations are allowed to exclude 70% of their interest income from corporate taxes.
B) Corporations are allowed to exclude 70% of their dividend income from corporate taxes.
C) Individuals pay taxes on only 30% of the income realized from municipal bonds.
D) Individuals are allowed to exclude 70% of their interest income from their taxes.
E) Individuals are allowed to exclude 70% of their dividend income from their taxes.
G) A) and B)
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A) Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.
B) After-tax operating income is calculated as EBIT(1 − T) + Depreciation.
C) Two firms with identical sales and operating costs but with different amounts of debt and tax rates will have different operating incomes by definition.
D) If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.
E) Retained earnings as reported on the balance sheet represent cash and, therefore, are available to distribute to stockholders as dividends or any other required cash payments to creditors and suppliers.
G) D) and E)
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A) $20.90
B) $22.00
C) $23.10
D) $24.26
E) $25.47
G) All of the above
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B) False
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A) The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes. Thus, the federal government receives no tax revenue from these businesses, even though they report high accounting profits.
B) All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code.
C) Small corporations that qualify under the Tax Code can elect not to pay corporate taxes, but then each stockholder must report his or her pro rata shares of the firm's income as personal income and pay taxes on that income.
D) Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the corporation's income and stockholders were taxed again on this income when it was paid to them as dividends.
E) All corporations other than non-profits are subject to corporate income taxes, which are 15% for the lowest amounts of income and 38% for the highest income amounts.
G) A) and D)
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A) $718
B) $756
C) $796
D) $836
E) $878
G) A) and B)
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A) The firm's reported net fixed assets would increase.
B) The firm's EBIT would increase.
C) The firm's reported 2014 earnings per share would increase.
D) The firm's cash position in 2014 and 2015 would increase.
E) The provision will increase the company's tax payments.
G) C) and E)
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A) 7.383%
B) 7.772%
C) 8.181%
D) 8.612%
E) 9.065%
G) A) and C)
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A) $114,030,875
B) $120,032,500
C) $126,350,000
D) $133,000,000
E) $140,000,000
G) D) and E)
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B) False
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A) The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
B) The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, the firm's value is based on its future cash flows. After all, future cash flows tells us how much the firm can distribute to its investors.
C) The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide.
D) The standard statements focus on cash flows, but managers should be less concerned with cash flows than with accounting income as defined by GAAP.
E) The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to "adjust" the results to make earnings look better.
G) D) and E)
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