Question 1

The current cash flow from existing assets is highly relevant to the investor. However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Accepted Answer

A) True 
 B)False

Question 2

Swinnerton Clothing Company's balance sheet showed total current assets of $2,250, all of which were required in operations. Its current liabilities consisted of $575 of accounts payable, $300 of 6% short-term notes payable to the bank, and $145 of accrued wages and taxes. What was its net operating working capital that was financed by investors?

Accepted Answer

A)   $1,454
B)   $1,530
C)   $1,607
D)   $1,771E) All of the above
F) A) and B)

Question 3

Which of the following statements best describes the financial statements?

Accepted Answer

A)   The balance sheet gives us a picture of the firm's financial position at a point in time.
B)   The income statement gives us a picture of the firm's financial position at a point in time.
C)   The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.
D)   The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.E) A) and B)
F) B) and D)

Question 4

Assume that Pappas Company commenced operations on January 1, 2008, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2008 management realized that the assets would last for only 10 years. The firm's accountants plan to report the 2008 financial statements based on this new information. How would the new depreciation assumption affect the company's financial statements?

Accepted Answer

A)   The firm's reported net fixed assets would increase.
B)   The firm's EBIT would increase.
C)   The firm's reported 2008 earnings per share would increase.
D)   The firm's cash position in 2008 and 2009 would increase.E) None of the above
F) B) and D)

Question 5

A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but now the company is allowed to depreciate the equipment over 7 years. Which of the following would occur in the year following the change?

Accepted Answer

A)   The firm's operating income (EBIT)  would increase.
B)   The firm's net cash flow would increase.
C)   The firm's tax payments would increase.
D)   The firm's reported net income would increase.E) B) and D)
F) B) and C)

Question 6

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 long-term debt.E) None of the above
F) A) and C)

Exam 2: Financial Statements, Cash Flow, and Taxes

Correct Answer
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The current cash flow from existing assets is highly relevant to the investor. However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Correct Answer
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Which of the following statements best describes the financial statements?

Correct Answer
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Correct Answer
verified

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
verified

Correct Answer
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Exam 2: Financial Statements, Cash Flow, and Taxes

Correct AnswerverifiedShow Answer

The current cash flow from existing assets is highly relevant to the investor. However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned.

Correct AnswerverifiedShow Answer

Which of the following statements best describes the financial statements?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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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