Quiz (Solutions)
INTRODUCTION TO FINANCE
(FIN60104/BUS1204)
Financial Management Decisions
1. Tim has been promoted and is now in charge
of all fixed asset purchases. In other words, Tim
is in charge of:
A. capital structure management.
B. asset allocation.
C. risk management.
D. capital budgeting
E. working capital management.
The process in which a business determines whether projects such as building
a new plant or investing in a long-term venture are worth pursuing.
Financial Management Decisions
2. Stadford, Inc. is financed with 40 percent debt
and 60 percent equity. This mixture of debt and
equity is referred to as the firm's:
A. capital structure.
B. capital budget.
C. asset allocation.
D. working capital.
E. risk structure.
Financial Management Decisions
3. Lester's BBQ has $121,000 in current assets
and $109,000 in current liabilities. These values
as referred to as the firm's:
A. capital structure.
B. cash equivalents.
C. working capital.
D. net assets.
E. fixed accounts.
4.
Financial Statements
The financial statement that summarizes a
firm's accounting value as of a particular
date is called the:
A. income statement.
B. cash flow statement.
C. liquidity position.
D. balance sheet.
E. periodic operating statement.
Income Statement: A financial statement that measures a company's financial
performance over a specific accounting period.
Balance sheet: A financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time.
Taxes
5.
Which one of the following terms is
defined as the total tax paid divided by the
total taxable income?
A. Average tax rate
B. Variable tax rate
C. Marginal tax rate
D. Absolute tax rate
E. Contingent tax rate
Working with Financial Statements:
Figure 1
Assets
Liabilities
Cash
193,000
Account Payable
296,000
Account
Receivables
253,000
Notes payable
189,000
Inventory
538,000
Long-term debt
1,250,000
Fixed Assets
5,947,000
Working with Financial Statements
Use Figure 1 to calculate Questions 6 and 7:
6.
7.
Calculate current ratio and net working
capital. (Answer: current ratio 984/485 =
2.03 times; NWC = $499,000).
Compute the owners’ equity? (Answer:
$5,196,000)
Working with Financial Statements
8.
The Carpentry Shop has sales of $398,600, costs of
$254,800, depreciation expense of $26,400, interest
expense of $1,600, and a tax rate of 34 percent. What is
the net income for this firm?
Answer:
Net income = ($398,600 - $254,800 - $26,400 $1,600) (1 - 0.34) = $76,428
Working with Financial Statements
9.
Keyser Materials paid $7,500 in dividends and $28,311 in
interest over the past year while net working capital
increased from $13,506 to $18,219. The company
purchased $42,000 in net new fixed assets and had
depreciation expenses of $16,805. During the year, the
firm issued $25,000 in net new equity and paid off
$11,000 in long-term debt. What is the amount of the
cash flow from assets?
Answer:
Cash flow from assets = ($28,311 + $11,000) + ($7,500 $25,000) = $21,811
Working with Financial Statements
10. The Paper Moon has an operating cash flow of $187,000
and a cash flow to creditors of $61,400 for the past year.
During that time, the firm invested $28,000 in net
working capital and incurred net capital spending of
$48,900. What is the amount of the cash flow to
stockholders for the last year?
CF from Assets = OCF – NCS – ΔNWC
CF2C+CF2S= OCF – NCS – ΔNWC
CF2S = OCF – NCS – ΔNWC – CF2C = 187000-48900-28000-61400
CF2S = 48700
Answer:
Cash flow to stockholders = ($187,000 - $28,000 $48,900) - $61,400 = $48,700