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HW 1 Solutions

The document contains 10 multiple choice questions about financial concepts such as net income, cash flow to stockholders, cash flow to creditors, and average tax rates. For each question, the relevant financial information is provided, such as income statements, balance sheet figures, tax rates, and interest paid. The correct answer is then shown as the solution to working through the accounting calculations required to derive the value requested in the question.

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0% found this document useful (0 votes)
511 views7 pages

HW 1 Solutions

The document contains 10 multiple choice questions about financial concepts such as net income, cash flow to stockholders, cash flow to creditors, and average tax rates. For each question, the relevant financial information is provided, such as income statements, balance sheet figures, tax rates, and interest paid. The correct answer is then shown as the solution to working through the accounting calculations required to derive the value requested in the question.

Uploaded by

jinny6061
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 7

9/16/13

Assignment Print View

1.

aw ard:

10.00 points Papa Roach Exterminators, Inc., has sales of $699,000, costs of $335,000, depreciation expense of $43,000, interest expense of $27,000, and a tax rate of 40 percent. If the firm paid out $72,000 in cash dividends. What is the addition to retained earnings?
rev: 09_17_2012 $174,400 $93,960 $147,400 $131,400

$104,400

The income statement for the company is: Income Statement Sales Costs Depreciation EBIT Interest EBT Taxes(40%) Net income $699,000 335,000 43,000 $321,000 27,000 $294,000 117,600 $176,400

One equation for net income is: Net income = Dividends + Addition to retained earnings Rearranging, we get: Addition to retained earnings = Net income Dividends = $176,400 72,000 = $104,400
Learning Objective: 02-01 The difference between accounting value (or book value) and market value.

Multiple Choice

Difficulty: Basic

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2.

aw ard:

10.00 points The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $960,000 in the common stock account and $6.05 million in the additional paid-in surplus account. The 2009 balance sheet showed $795,000 and $8.1 million in the same two accounts, respectively. If the company paid out $620,000 in cash dividends during 2009, What was the cash flow to stockholders for the year?
rev: 09_17_2012 $340,000 $1,265,000 $8,275,000 $175,000

$-1,265,000

Cash flow to stockholders Cash flow to stockholders Cash flow to stockholders Cash flow to stockholders

= = = =

Dividends paid Net new equity Dividends paid [(Commonend + APISend) (Commonbeg + APISbeg)] $620,000 [($795,000 + 8,100,000) ($960,000 + 6,050,000)] $-1,265,000

Note, APIS is the additional paid-in surplus.


Learning Objective: 02-04 How to determine a firms cash flow from its financial statements.

Multiple Choice

Difficulty: Basic

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3.

aw ard:

10.00 points Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $7.5 million. The machinery can be sold to the Romulans today for $4.05 million. Klingon's current balance sheet shows net fixed assets of $3.6 million, current liabilities of $1.7 million, and net working capital of $560,000. If all the current assets were liquidated today, the company would receive $1.8 million cash. Required: (a) What is the book value of Klingon's assets today? 5,860,000 (b) What is the market value? 5,850,000
rev: 09_17_2012 Explanation: (a)

To find the book value of current assets, we use: NWC = CA CL. Rearranging to solve for current assets, we get: CA = NWC + CL = $560,000 + 1,700,000 = $2,260,000 The market value of current assets and fixed assets is given, so: Book value CA Book value NFA Book value assets
(b)

$2,260,000 $3,600,000 $5,860,000

Market value CA Market value NFA Market value assets

$1,800,000 $4,050,000 $5,850,000


Learning Objective: 02-01 The difference between accounting value (or book value) and market value.

Worksheet

Difficulty: Basic

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4.

aw ard:

10.00 points
The tax rates are as shown.

Taxable Income $0 50,000 50,001 75,000 75,001 100,000 100,001 335,000

Tax Rate 15% 25% 34% 39%

What is the average tax rate for a firm with taxable income of $130,513?

26.17% 20.00% 28.66% 39.00% 37.07%

Taxes paid = 0.15($50,000) + 0.25($75,000 50,000) + 0.34($100,000 75,000) + 0.39($130,513 100,000) = $34,150.07 Average tax rate = $34,150.07 / $130,513 = 26.17%

5.

aw ard:

10.00 points The 2008 balance sheet of Saddle Creek, Inc., showed current assets of $1,410 and current liabilities of $860. The 2009 balance sheet showed current assets of $1,740 and current liabilities of $1,100. What was the company's 2009 change in net working capital, or NWC?
rev: 09_17_2012 $-200 $-570 $570 $2,050

$90

Change in NWC = Change in NWC = Change in NWC = Change in NWC =


Multiple Choice

NWCend NWCbeg (CAend CLend) (CAbeg CLbeg) ($1,740 1,100) ($1,410 860) $640 550 = $90
Difficulty: Basic

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Assignment Print View

6.

aw ard:

10.00 points
The tax rates are as shown.

Taxable Income $0 50,000 50,001 75,000 75,001 100,000 100,001 335,000

Tax Rate 15% 25% 34% 39%

Your firm currently has taxable income of $80,800. How much additional tax will you owe if you increase your taxable income by $22,000?
$7,620 $7,230 $7,480 $7,240 $8,580

Taxes on $80,800 income = 0.15($50,000) + 0.25($75,000 50,000) + 0.34($80,800 75,000) = $15,722 New taxable income = $80,800 + $22,000 = $102,800 Taxes on $102,800 income = 0.15($50,000) + 0.25($75,000 50,000) + 0.34($100,000 75,000) + 0.39($102,800 100,000) = $23,342 Additional tax = $23,342 $15,722 = $7,620

7.

aw ard:

10.00 points The 2008 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.85 million, and the 2009 balance sheet showed long-term debt of $3.5 million. The 2009 income statement showed an interest expense of $280,000. What was the firm's cash flow to creditors during 2009?
rev: 09_17_2012 $-280,650 $650,280

$-370,000 $650,000 $-279,350

Cash flow to creditors Cash flow to creditors Cash flow to creditors Cash flow to creditors
Multiple Choice

= = = =

Interest paid Net new borrowing Interest paid (LTDend LTDbeg) $280,000 ($3,500,000 2,850,000) $-370,000
Difficulty: Basic

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8.

aw ard:

10.00 points Peggy Grey's Cookies has net income of $390. The firm pays out 40 percent of the net income to its shareholders as dividends. During the year, the company sold $84 worth of common stock. What is the cash flow to stockholders?
$234.00 $240.00 $156.00

$72.00 $122.40

CFS = (0.40 $390) $84 = $72.00

9.

aw ard:

10.00 points Papa Roach Exterminators, Inc., has sales of $604,000, costs of $245,000, depreciation expense of $55,000, interest expense of $34,000, and a tax rate of 35 percent. What is the net income for firm?
rev: 09_17_2012 $264,500 $58,600 $230,500 $209,500

$175,500

The income statement for the company is: Income Statement Sales Costs Depreciation EBIT Interest EBT Taxes (35%) Net income $604,000 245,000 55,000 $304,000 34,000 $270,000 94,500 $175,500
Learning Objective: 02-01 The difference between accounting value (or book value) and market value.

Multiple Choice

Difficulty: Basic

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10.

aw ard:

10.00 points At the beginning of the year, long-term debt of a firm is $302 and total debt is $336. At the end of the year, long-term debt is $266 and total debt is $346. The interest paid is $32. What is the amount of the cash flow to creditors?
$32 $68 $36 $36

$68

CFC = $32 ($266 302) = $68

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