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FIN 11 Exam: Feb 21, 2017 Prof. Augenthaler Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the back of this sheet for calculationsotes. Be organized! If your notes are CLEAR and EASILY UNDERSTANDABLE, you may receive partial credit. 1) A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? A) $922 Net income $911 B) $959 Depreciation expense $47 Increase in accounts receivable ($28) C) $776 Decrease in inventory $14 D) $865 Increase in accounts payable $15 Net cash flows from operating activities E) $985 1) 2) On the statement of cash flows, which of the following are considered financing activities? 2) $904 I. Increase in long-term debt. II. Decrease in accounts payable. III. Interest paid. IV. Dividends paid. A) III and IV only. B) I, II, III, and IV. C) I and IV only. D) I, III, and IV only. E) II and III only. A 3) Which one of the following is a use of cash? A) Decrease in accounts payable. B) Decrease in inventory. C) Decrease in fixed assets. D) Decrease in accounts receivables. E) Increase in long-term debt. 3) 4) Shareholders' equity: A) Represents the residual value of a firm. B) Includes patents, preferred stock, and common stock. C) Decreases whenever new shares of stock are issued. D) Is equal to total assets plus total liabilities. E) Is referred to as a firm's financial leverage. 4) 5) According to the statement of cash flows, an increase in inventory will ________ the cash flow from ________ activities. A) Increase; investment. B) Increase; financing. C) Decrease; operating. D) Decrease; financing. E) Increase; operating. 5) 2 6) Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital? A) $56,500 B) $149,900 C) -$47,500 D) $125,600 E) $93,500 6) 7) A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities? A) $2,050 B) $2,920 C) $7,950 D) $4,130 E) $6,890 7) 8) Which one of the following statements concerning net working capital is correct? A) Net working capital may be a negative value. B) Total assets must increase if net working capital increases. C) Net working capital is the amount of cash a firm currently has available for spending. D) Net working capital increases when inventory is purchased with cash. E) Net working capital excludes inventory. 8) 3 9) Which one of these is most apt to be a fixed cost? A) Shipping and freight. B) Management bonuses. C) Office salaries. D) Raw materials. E) Manufacturing wages. 10) You have gathered this information on JJ Enterprises: What is the change in net working capital from 2014 to 2015? A) -$70 B) $57 C) -$326 D) $40 E) $105 4 9) 10) 11) A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets? A) $6,128.05 B) $11,034.00 C) $9,571.95 D) $13,358.77 E) $7,253.40 5 11) 12) Use the below information to answer the following question. How many days of sales are in receivables at year-end? A) 38.00 days B) 29.41 days C) 54.53 days D) 51.40 days E) 40.32 days 6 12) 13) Which one of the following will decrease the value of a firm's net working capital? A) Purchasing inventory on credit. B) Depreciating an asset. C) Collecting an accounts receivable. D) Using cash to pay a supplier. E) Selling inventory at a loss. 13) 14) Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35 percent. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes? A) $1,269.46 B) $1,331.54 C) $9,560.85 D) $589.46 E) $10,949.46 14) 7 15) Use the below information to answer the following question. How many days on average does it take to sell the inventory? (Use year-end values) A) 74.42 days B) 219.63 days C) 147.46 days D) 128.13 days E) 177.13 days 8 15) 16) The following information pertains to Galaxy Interiors: What is the net capital spending for 2015? A) -$127 B) $1,229 C) $1,172 D) $1,993 E) -$382 9 16) 17) The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? A) 84.69 days B) 74.19 days C) 118.08 days D) 121.07 days E) 106.46 days 10 17) 18) Use the below information to answer the following question. How does accounts payable affect the statement of cash flows for the year? A) a source of $4,200 of cash as a financing activity B) a source of $5,250 of cash as an operating activity C) a source of $31,800 of cash as an operating activity D) a use of $5,250 of cash as investment financing activity E) a use of $31,800 of cash as an operating activity 11 18) 19) Use the below information to answer the following question. What is the amount of the cash flow from investment activity for the year? A) $21,850 B) $49,950 C) $51,150 D) $39,400 E) $29,300 12 19) 20) Depreciation for a tax-paying firm: A) Decreases net fixed assets, net income, and operating cash flows. B) Reduces both the net fixed assets and the costs of a firm. C) Is a noncash expense that increases the net income. D) Increases expenses and lowers taxes. E) Increases the net fixed assets as shown on the balance sheet. 20) 21) If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following? A) 1.0 B) .5 C) 2.0 D) 1.5 E) 0 21) 22) An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. A) Increase in the cash ratio. B) Increase in the current ratio. C) Increase in the net working capital to total assets ratio. D) Decrease in the quick ratio. E) Decrease in the cash coverage ratio. 22) 13 23) At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital? A) -$9,387 B) $21,903 C) -$11,503 D) $1,809 E) -$19,679 23) 24) The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways? A) Decrease in the inventory turnover rate. B) Decrease in the total asset turnover rate. C) Decrease in the day's sales in inventory. D) Increase in the fixed asset turnover rate. E) Decrease in the net working capital turnover rate. 24) 25) The following information pertains to Galaxy Interiors: 25) 14 What is the amount of dividends paid for 2015? A) $1,948 B) $1,374 C) $0 D) $574 E) 800 26) Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio? A) 1.35 B) .53 C) 2.25 D) .89 E) .71 26) 27) If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm: A) May have short-term, but not long-term debt. B) Has no net working capital. C) Has a debt-equity ratio of 1.0. D) Has an equity multiplier of 1.0. E) Is using its assets as efficiently as possible. 27) 15 28) The financial planning process: 28) I. Involves internal negotiations among divisions. II. Quantifies senior manager's goals. III. Considers only internal factors. IV. Reconciles company activities across divisions. A) III and IV only. B) II and III only. C) I, II, III, and IV. D) II, III, and IV only. E) I, II, and IV only. 29) Use the below information to answer the following question. What is the taxable income given the above information? A) $2,776.41 B) $1,051.00 C) $1,084.85 D) $636.36 E) $1,367.78 16 29) 30) An increase in which of the following will increase the return on equity, all else constant? 30) I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio. A) I and II only. B) I only. C) I, II, and III only. D) I, II, III, and IV. E) I, II, and IV only. 31) Lenders probably have the most interest in which one of the following sets of ratios? A) Return on assets and profit margin. B) Market-to-book and times interest earned. C) Long-term debt and times interest earned. D) Price-earnings and debt-equity. E) Return on equity and price-earnings. 17 31)