Professional Documents
Culture Documents
Spring 2007
Name:_____________________________
Multiple Choice: Select the best answer. Circle the letter that corresponds to your
answer. Make sure to circle only one answer.
1.
Giventhefinancialmanagerspreferenceforfasterreceiptofcashflows,
(a) alongerdepreciablelifeispreferredtoashorterone.
(b) ashorterdepreciablelifeispreferredtoalongerone.
(c) themanagerisnotconcernedwithdepreciablelives,becausedepreciationisanoncash
expense.
(d) themanagerisnotconcernedwithdepreciablelives,becauseoncepurchased,
depreciationisconsideredasunkcost.
2.
UnderMACRS,anassetwhichoriginallycost$100,000,incurredinstallationcostsof
$10,000,andhasanestimatedsalvagevalueof$25,000,isbeingdepreciatedasa5year
classasset.Whatisthedepreciationexpenseinyear1?
(a) $15,000
(b) $12,750
(c) $11,250
(d) $22,000
Thecashflowsfromoperatingactivitiesofthefirminclude
(a) laborexpense.
(b) interestexpense.
(c) taxespaid.
(d) dividendspaid.
4.
AfirmhasactualsalesinNovemberof$1,000andprojectedsalesinDecemberand
Januaryof$3,000and$4,000,respectively.Thefirmmakes10percentofitssalesforcash,
collects40percentofitssalesonemonthfollowingthesale,andcollectsthebalancetwo
monthsfollowingthesale.ThefirmstotalexpectedcashreceiptsinJanuary
(a) are$700.
(b) are$2,100.
(c) are$1,900.
(d) cannotbedeterminedwiththeinformationprovided.
5.
Utilizingpastcostandexpenseratios(percentofsalesmethod)whenpreparingproforma
financialstatementswilltendto
(a) understateprofitswhensalesaredecreasingandoverstateprofitswhensalesare
increasing.
(b) understateprofits,nomatterwhatthechangeinsales,aslongasfixedcostsare
present.
(c) understateprofitswhensalesareincreasingandoverstateprofitswhensalesare
decreasing.
(d) overstateprofits,nomatterwhatthechangeinsales,aslongasfixedcostsarepresent.
6.
GiventhefinancialdataforNewElectronicWorld,Inc.(NEW),computethefreecash
flowfortheyearendedDecember31,2005
FortheyearendedDecember31,
2004
Depreciation
EBIT
InterestExpenses
Taxes
Cash
AccountsReceivable
Inventory
Netfixedassets
Accountspayable
Notespayable
Accruals
(a)
(b)
(c)
(d)
$21,000
39,000
27,000
22,000
25,000
50,000
1,000
2005
$3,000
30,000
3,000
8,000
24,000
45,000
30,000
24,000
30,000
40,000
2,000
$18,000
$12,000
$32,000
$14,000
Ruff Sandpaper Company has net income after taxes of $150 for 2006. Using the
information in Table 3.1 below, what is Ruffs Cash Provided by Operations on its
2006 Statement of Cash Flows?
(a) $50
(b) $150
(c) $350
(d) $450
Net Income
Add: Depreciation
Less: Increase in accounts receivable
Less: Increase in inventories
Add: Increase in accounts payable
Cash provided by operating activities
150
200
(200)
(200)
100
50
Table3.1
RuffSandpaperCo.
BalanceSheets
FortheYearsEnded2005and2006
2006
Assets
Cash
Marketablesecurities
Accountsreceivable
Inventories
Grossfixedassets
LessAccumulatedDepreciation
Netfixedassets
Totalassets
Liabilities
Accountspayable
Notespayable
Accruals
Longtermdebt
Stockholdersequity
Commonstockatpar
Paidincapitalinexcessofpar
Retainedearnings
Totalliabilitiesandequity
2005
800
200
1,200
2,000
3,000
1,000
600
200
1,000
1,800
2,800
800
2,000
6,200
2,000
5,600
200
800
100
2,000
100
900
100
1,500
500
2,000
600
6,200
500
2,000
500
5,600
3,990
15,000
EFN 2007
-942
Sales for next year (2007) are expected to be $24,000. The firm is running efficiently and
at full capacity so that all assets and spontaneous liabilities are expected to increase
proportionally with sales. The dividend payout ratio for 2007 will be 20%.
IUP Enterprises
2006 Financial Statements
Income Statement ($)
Sales
Operating Expenses
EBIT
Interest Expense
EBT
Taxes (30%)
Net Income
16,000
12,000
4,000
200
3,800
1,140
2,660
4,000
6,000
10,000
Accounts Payable
Accruals
Long-term Debt
Common Stock
Retained Earnings
Total Liabilities and Equity
2,000
1,000
2,500
3,000
1,500
10,000
Working:
IUP Enterprises
Financial Statements
2006 % Sale
Sales
Operating Expenses
EBIT
Interest Expenses
EBT
Taxes (30%)
Net Income
16,000
12,000
4,000
200
3,800
1,140
2,660
100%
75%
4,000
6,000
25%
38%
1%
30%
2007
24,000
18,000 (24,000 x 75%)
6,000
300 (24,000 x 1%)
5,700
1,710 (5,700 x 30%)
3,990
10,000
2,000
1,000
2,500
3,000
1,500
10,000
EFN
13%
6%
16%
3,000
1,500
3,750
3,000
4,692
(24,000 x 13%)
(24,000 x 6%)
(24,000 x 16%)
(1,500 + 3,192)
15,942
-942 (15,000 - 15,942)
3,990
(798)
3,192
2.
ThefinancialanalystforSportif,Inc.hascompiledsalesandpurchasesestimatesforthe
comingmonthsofJanuarythroughMayasshowninTable3.2below.Historically,75
percentofsalesareforcashwiththeremaining25percentcollectedinthefollowing
month.Purchasesaretypicallypaid70%inthemonthofpurchaseand30%inthe
followingmonth.TheendingcashbalanceinJanuaryis$3,000.Thecompanywantsto
maintainaminimumcashbalanceof$4,000.Prepareacashbudgetforthemonthsof
FebruaryandMarch,notinganyneededfinancingorexcesscashneeded.
Table3.2
Month
January
February
March
April
May
Sportif,Inc.
Sales
$5,000
6,000
10,000
10,000
10,000
Purchases
$6,000
$7,000
$4,000
$5,000
$5,000
Solution:
Feb
$3,000
Mar
$1,600
$4,500
$3,100
$1,500
$7,500
$6,100
$12,100
$9,100
$12,100
$1,800
$4,200
Total Payments
$6,000
$4,600
$3,100
$7,500
$1,800
$2,800
(25% x $5,000)
(75% x $6,000) & (25% x $6,000)
(75% x $10,000)
(30% x $6,000)
(70% x $7,000 & 30% x $7,000)
(70% x $4,000)