Exam 1 (Chapters 1-5) Flashcards
(48 cards)
Maximizing owners’ equity value means carefully considering all of the following EXCEPT:
how best to increase the firm’s risk
The portion of a company’s profits that are kept by the company rather than distributed to the stockholders as cash dividends is referred to as:
retained earnings
Not all cash a company generates will be returned to the investors. Which of the following will NOT reduce the amount of capital returned to the investors?
Dividends
In order for an angel investor or venture capitalist to exchange capital for ownership in a business that is a sole proprietorship, which of these must happen?
Both the businesses must be reformed as a partnership and the owner must give up some control
From a taxation perspective, the form of business organization with the highest business level taxes is the:
corporation
This type of business organization is entirely legally independent from its owners.
Public corporations
An employee stock option plan is:
a way to align the interests of employees with those of the owners.
These individuals examine the firm’s accounting systems and comment on whether financial statements fairly represent the firm’s financial position.
Auditors
This is the set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.
Corporate governance
This group is elected by stockholders to oversee management in a corporation.
Board of directors
Net operating profit after taxes (NOPAT) is defined as which of the following?
net profit a firm earns after taxes, but before any financing costs
Which of the following activities result in an increase in a firm’s cash?
decrease fixed assets
All of the following are cash flows from operations EXCEPT
increases or decreases in cash.
Financial statements of publicly traded firms can be found in a number of places. Which of the following is NOT an option for finding publicly traded firms’ financial statements?
The Sarbanes-Oxley Act requires public companies to ensure which of the following individuals have considerable experience applying generally accepted accounting principles (GAAP) for financial statements?
corporate boards’ audit committees
You have been given the following information for Fina’s Furniture Corp.: Net sales = $25,500,000; Cost of goods sold = $10,250,000; Addition to retained earnings = $305,000; Dividends paid to preferred and common stockholders = $500,000; Interest expense = $2,000,000. The firm’s tax rate is 30 percent. What is the depreciation expense for Fina’s Furniture Corp.?
$12,100,000
Hair Etc. has total assets of $15 million. Twenty percent of these assets are financed with debt of which $1 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $8 million. Using this information what is the balance for long-term debt and retained earnings on Hair Etc.’s balance sheet?
$2 million, $4 million
Catering Corp. reported free cash flows for 2018 of $8 million and investment in operating capital of $2 million. Catering listed $1 million in depreciation expense and $2 million in taxes on its 2018 income statement. What was Catering’s 2018 EBIT?
$11 million
TriCycle, Corp. began the year 2018 with $25 million in retained earnings. The firm earned net income of $7 million in 2018 and paid $1 million to its preferred stockholders and $3 million to its common stockholders. What is the year-end 2018 balance in retained earnings for TriCycle?
$28 million
The AOK Corporation had a 2018 taxable income of $2,200,000 from operations after all operating costs but before
(1) interest charges of $90,000,
(2) dividends received of $750,000,
(3) dividends paid of $80,000, and
(4) income taxes.
Using the tax schedule in Table 2.3, what is AOK’s income tax liability? What are AOK’s average and marginal tax rates on taxable income from operations?
$793,900, 36.0864%, 34%, respectively
An investor wanting large returns will be interested in companies that have
high ROEs.
Which of the following statements is correct?
- If a firm has a very high fixed asset turnover, it means that the firm may be nearing its maximum production capacity.
- In general, a firm should strive for a high average payment period because it wants to pay for its purchases as quickly as possible.
- An extremely low average collection period will maximize net income.
The term “capital structure” refers to
the amount of long-term debt versus equity on the balance sheet.
Ernie’s Mufflers has current liabilities of $45 million. Cash makes up 5 percent of the current assets and accounts receivable makes up another 50 percent of current assets. Ernie’s current ratio = 1.5 times. What is the value of inventory listed on the firm’s balance sheet?
$30.375m.
