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1.

aw ard:

10.00 points Papa Roach Exterminators, Inc., has sales of $699,000, costs of $335,000, depreciation expense of $43,000, interest expense of $27,000, and a tax rate of 40 percent. If the firm paid out $72,000 in cash dividends. What is the addition to retained earnings?
rev: 09_17_2012 $174,400 $93,960 $147,400 $131,400

$104,400

The income statement for the company is: Income Statement Sales Costs Depreciation EBIT Interest EBT Taxes(40%) Net income $699,000 335,000 43,000 $321,000 27,000 $294,000 117,600 $176,400

One equation for net income is: Net income = Dividends + Addition to retained earnings Rearranging, we get: Addition to retained earnings = Net income Dividends = $176,400 72,000 = $104,400
Learning Objective: 02-01 The difference between accounting value (or book value) and market value.

Multiple Choice

Difficulty: Basic

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2.

aw ard:

10.00 points The 2008 balance sheet of Maria's Tennis Shop, Inc., showed $960,000 in the common stock account and $6.05 million in the additional paid-in surplus account. The 2009 balance sheet showed $795,000 and $8.1 million in the same two accounts, respectively. If the company paid out $620,000 in cash dividends during 2009, What was the cash flow to stockholders for the year?
rev: 09_17_2012 $340,000 $1,265,000 $8,275,000 $175,000

$-1,265,000

Cash flow to stockholders Cash flow to stockholders Cash flow to stockholders Cash flow to stockholders

= = = =

Dividends paid Net new equity Dividends paid [(Commonend + APISend) (Commonbeg + APISbeg)] $620,000 [($795,000 + 8,100,000) ($960,000 + 6,050,000)] $-1,265,000

Note, APIS is the additional paid-in surplus.

Learning Objective: 02-04 How to determine a firms cash flow from its financial statements.

Multiple Choice

Difficulty: Basic

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3.

aw ard:

10.00 points Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $7.5 million. The machinery can be sold to the Romulans today for $4.05 million. Klingon's current balance sheet shows net fixed assets of $3.6 million, current liabilities of $1.7 million, and net working capital of $560,000. If all the current assets were liquidated today, the company would receive $1.8 million cash. Required: (a) What is the book value of Klingon's assets today? 5,860,000 (b) What is the market value? 5,850,000
rev: 09_17_2012 Explanation: (a)

To find the book value of current assets, we use: NWC = CA CL. Rearranging to solve for current assets, we get: CA = NWC + CL = $560,000 + 1,700,000 = $2,260,000 The market value of current assets and fixed assets is given, so: Book value CA Book value NFA Book value assets
(b)

$2,260,000 $3,600,000 $5,860,000

Market value CA Market value NFA Market value assets

$1,800,000 $4,050,000 $5,850,000

Learning Objective: 02-01 The difference between accounting value (or book value) and market value.

Worksheet

Difficulty: Basic

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4.

aw ard:

10.00 points
The tax rates are as shown.

Taxable Income $0 50,000 50,001 75,000 75,001 100,000 100,001 335,000

Tax Rate 15% 25% 34% 39%

What is the average tax rate for a firm with taxable income of $130,513?

26.17% 20.00% 28.66% 39.00% 37.07%

Taxes paid = 0.15($50,000) + 0.25($75,000 50,000) + 0.34($100,000 75,000) + 0.39($130,513 100,000) = $34,150.07 Average tax rate = $34,150.07 / $130,513 = 26.17%

5.

aw ard:

10.00 points The 2008 balance sheet of Saddle Creek, Inc., showed current assets of $1,410 and current liabilities of $860. The 2009 balance sheet showed current assets of $1,740 and current liabilities of $1,100. What was the company's 2009 change in net working capital, or NWC?
rev: 09_17_2012 $-200 $-570 $570 $2,050

$90

Change in NWC = Change in NWC = Change in NWC = Change in NWC =

Multiple Choice

NWCend NWCbeg (CAend CLend) (CAbeg CLbeg) ($1,740 1,100) ($1,410 860) $640 550 = $90
Difficulty: Basic

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6.

aw ard:

10.00 points
The tax rates are as shown.

Taxable Income $0 50,000 50,001 75,000 75,001 100,000 100,001 335,000

Tax Rate 15% 25% 34% 39%

Your firm currently has taxable income of $80,800. How much additional tax will you owe if you increase your taxable income by $22,000?
$7,620 $7,230 $7,480 $7,240 $8,580

Taxes on $80,800 income = 0.15($50,000) + 0.25($75,000 50,000) + 0.34($80,800 75,000) = $15,722 New taxable income = $80,800 + $22,000 = $102,800 Taxes on $102,800 income = 0.15($50,000) + 0.25($75,000 50,000) + 0.34($100,000 75,000) + 0.39($102,800 100,000) = $23,342 Additional tax = $23,342 $15,722 = $7,620

7.

aw ard:

10.00 points The 2008 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $2.85 million, and the 2009 balance sheet showed long-term debt of $3.5 million. The 2009 income statement showed an interest expense of $280,000. What was the firm's cash flow to creditors during 2009?
rev: 09_17_2012 $-280,650 $650,280

$-370,000 $650,000 $-279,350

Cash flow to creditors Cash flow to creditors Cash flow to creditors Cash flow to creditors
Multiple Choice

= = = =

Interest paid Net new borrowing Interest paid (LTDend LTDbeg) $280,000 ($3,500,000 2,850,000) $-370,000
Difficulty: Basic

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8.

aw ard:

10.00 points Peggy Grey's Cookies has net income of $390. The firm pays out 40 percent of the net income to its shareholders as dividends. During the year, the company sold $84 worth of common stock. What is the cash flow to stockholders?
$234.00 $240.00 $156.00

$72.00 $122.40

CFS = (0.40 $390) $84 = $72.00

9.

aw ard:

10.00 points Papa Roach Exterminators, Inc., has sales of $604,000, costs of $245,000, depreciation expense of $55,000, interest expense of $34,000, and a tax rate of 35 percent. What is the net income for firm?
rev: 09_17_2012 $264,500 $58,600 $230,500 $209,500

$175,500

The income statement for the company is: Income Statement Sales Costs Depreciation EBIT Interest EBT Taxes (35%) Net income $604,000 245,000 55,000 $304,000 34,000 $270,000 94,500 $175,500
Learning Objective: 02-01 The difference between accounting value (or book value) and market value.

Multiple Choice

Difficulty: Basic

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10.

aw ard:

10.00 points At the beginning of the year, long-term debt of a firm is $302 and total debt is $336. At the end of the year, long-term debt is $266 and total debt is $346. The interest paid is $32. What is the amount of the cash flow to creditors?
$32 $68 $36 $36

$68

CFC = $32 ($266 302) = $68

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