Corporate Finance – Chapter 2 – Long Quiz 1
1) Marvelous Entertainment Group, Inc. had net income of $32.7 million in 2005. The firm paid no dividends. If there were no further changes to the stockholders' equity accounts, then _____ by $32.7 million. [ ] common stock must have increased
√ [ ] retained earnings must have increased
[ ] total stockholders' equity must have decreased
[ ] capital surplus must have decreased
[ ] the market value of the firm's stock must have decreased
2) Last year, Eddie's, Inc. had an operating cash flow of $284,500. The net fixed asset account declined by $8,000 and the depreciation expense was $13,000. Also during the year, net working capital increased from $16,500 to $18,000. What is the company's cash flow from assets? [ ] $262,000
√ [ ] $278,000
[ ] $281,000
[ ] $288,000
[ ] $301,000
3) Which of the following is a (are) component(s) of cash flow to creditors? I. interest paid
II. net new borrowing
III. dividends paid
[ ] I only
[ ] II only
√ [ ] I and II only
[ ] I and III only
[ ] II and III only
4) The balance sheet is a financial statement summarizing a firm's performance over a period of time. [ ] True
√ [ ] False
5) Sales are $16,500, cost of goods sold is $10,350, operating expenses are $3,118, depreciation is $1,120, and interest expense is $900. The tax rate is 34 percent. Given this information, what is the amount of the operating cash flow? [ ] $667.92
[ ] $1,912.00
[ ] $2,201.12
[ ] $2,381.92
√ [ ] $2,687.92
6) Last year the operating cash flow for JBC Inc. was positive while total cash flow from assets was negative. Based on this information, you know that: [ ] the firm is in financial distress.
[ ] this is certainly good news, because the firm is investing a lot of cash in new projects. [ ] cash flow to stockholders is also negative.
[ ] the firm's net income for the year was also negative. √ [ ] the firm invested more cash in assets and working capital than it generated from operations during the year.
7) As an investor, how can you determine the total market value of a publicly traded corporation such as General Motors? I. add the value of the debt and the equity as they appear on the most recent financial statement II. add the value of debt as it appears on the most recent financial statement to the current market value of GM's common stock III. add the current market value of GM's stock and the current market value of GM's debt [ ] I only
[ ] II only
√ [ ] III only
[ ] I and II only
[ ] II and III only
8) Which one of the following is generally considered a fixed cost, at least in the short run? [ ] raw materials
[ ] direct labor expenses
√ [ ] company president's salary
[ ] manufacturing labor
[ ] commissions paid to the sales force
9) Which one of the following statements accurately describes the relationship between book value and market value? √ [ ] Market value is more relevant to financial managers than book value. [ ] Market value is rarely different from book value because the economic worth of an asset rarely changes over time. [ ] Financial managers should always evaluate book values, not market values, when making decisions for the firm. [ ] Market value always exceeds book value.
[ ] The market value of current assets is often difficult to determine.
10) According to the cash flow identities, change in net working capital is equal to operating cash flow minus cash flow to creditors minus cash flow to stockholders minus net capital spending. √ [ ] True
[ ] False
11) Which one of the following assets is generally the least liquid? [ ] 100 shares of common stock in IBM
√ [ ] customized piece of equipment used in the production of steel plates [ ] 100 shares of preferred stock in General Motors
[ ] U.S. Treasury bill
[ ] accounts...
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