FRL 300 Midterm 1 - Solutions
1 Net working capital is defined as:
A. total liabilities minus shareholders' equity.
B. current liabilities minus shareholders' equity.
C. fixed assets minus long-term liabilities.
D. total assets minus total liabilities.
E. current assets minus current liabilities.
Refer to section 2.1
2 Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
A. income statement
B. balance sheet
C. statement of cash flows
D. tax reconciliation statement
E. market value report
Refer to section 2.2
3 The _____ tax rate is equal to total taxes divided by total taxable income.
A. deductible
B. residual
C. total
D. average
E. marginal
Refer to section 2.3
4 Cash flow to stockholders is defined as:
A. the total amount of interest and dividends paid during the past year.
B. the change in total equity over the past year.
C. cash flow from assets plus the cash flow to creditors.
D. operating cash flow minus the cash flow to creditors.
E. dividend payments less net new equity raised.
Refer to section 2.4
5 The cash flow related to interest payments less any net new borrowing is called the:
A. operating cash flow.
B. capital spending cash flow.
C. net working capital.
D. cash flow from assets.
E. cash flow to creditors.
Refer to section 2.4
6 Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?
A. real estate investment
B. good reputation of the company
C. equipment owned by the firm
D. money due from a customer
E. an item held by the firm for future sale
Refer to section 2.17 Which one of the following represents the most liquid asset?
A. $100 account receivable that is discounted and collected for $96 today
B. $100 of inventory which is sold today on credit for $103
C. $100 of inventory which is discounted and sold for $97 cash today
D. $100 of inventory that is sold today for $100 cash
E. $100 accounts receivable that will be collected in full next week
8 Shareholders' equity:
A. increases in value anytime total assets increases.
B. is equal to total assets plus total liabilities.
C. decreases whenever new shares of stock are issued.
D. includes long-term debt, preferred stock, and common stock.
E. represents the residual value of a firm.
Refer to section 2.1
9
A. $710
B. $780
C. $990
D. $2,430
E. $2,640
Current assets = $520 + $190 + $70 = $780
10
A. ($100)
B. $500
C. $300
D. $1,700
E. $1,800
Net working capital = $4,800 - $2,900 - $1,400 = $500
11
A. $42,750
B. $44,450
C. $82,550
D. $86,450
E. $124,550
Net income = ($687,000 - $492,000 - $26,000 - $42,000) (1 - .35) = $82,550
12 Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $311,360?
A. 28.25 percent
B. 31.09 percent
C. 33.62 percent Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($211,360) = $104,680.40
D. 35.48 percent Average tax rate = $104,680.40/$311,360 = 33.62 percent
E. 39.00 percent
A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is
the amount of the current assets?
Your firm has total assets of $4,800, fixed assets of $2,900, long-term debt of $2,500, and short-term debt of $1,400. What is the
amount of net working capital?
Andre's Bakery has sales of $687,000 with costs of $492,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is
35 percent. What is the net income? 13
A. ($19,679)
B. ($11,503)
C. ($9,387)
D. $1,809
E. $21,903
Change in net working capital = ($122,418 - $103,718) - ($121,306 - $124,509) = $21,903
14
A. ($18,348)
B. ($1,001)
C. $11,129
deductibleD. $13,861
E. $19,172
Cash flow to creditors = $6,430 - ($68,219 - $72,918) = $11,129
15
A. $76,320
B. $81,700
C. $95,200
D. $103,460
E. $121,680
Net income = ($546,000 - $295,000 - $37,000 - $15,000) (1 - .32) = $135,320
Addition to retained earnings = $135,320 - $59,000 = $76,320
Chapter 3 Questions
16
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. turnover
Refer to section 3.3
17 Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
A. return on equity
B. return on assets
C. profit margin
D. total asset turnover