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Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross Multiple Choice Questions 1. Net working capital is defined as: a. cash, accounts receivable, and inventory. b. current assets. c. cash minus current liabilities. d. current assets plus current liabilities. E. current assets minus current liabilities. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: DEFINITIONS 2. GAAP is: a. the generally accepted accounts payable credit terms. b. the general agreement between a firm and its short-term creditors. c. a commonly accepted method of depreciating fixed assets. D. a common set of standards and procedures for preparing audited financial statements. e. the procedure for expensing variable costs of production. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: GAAP TYPE: DEFINITIONS 3. The financial statement that summarizes a firm's operations over a period of time is called a(n): A. income statement. b. cash flow statement. c. production report. d. balance sheet. e. periodic operating statement. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: DEFINITIONS 2-1 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 4. An expense that lowers net income but does not affect a firm's cash flow is referred to as a(n): a. indirect cost. b. direct cost. C. noncash item. d. period cost. e. variable cost. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: NONCASH ITEMS TYPE: DEFINITIONS 5. The average tax rate is defined as the: a. amount of tax due on the next dollar of taxable income. b. total tax paid divided by total revenue. c. amount of tax due on the next dollar of revenue. d. total tax paid divided by total assets. E. total taxes divided by total taxable income. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: AVERAGE TAX RATE TYPE: DEFINITIONS 6. The tax rate applicable to the next dollar of taxable income is called the _____ tax rate. a. total B. marginal c. absolute d. average e. next BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: MARGINAL TAX RATE TYPE: DEFINITIONS 2-2 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 7. Cash flow from assets can be defined as: a. cash flow to shareholders minus the cash flow to creditors. b. operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. C. operating cash flow minus the change in net working capital minus net capital spending. d. net capital spending plus the change in net working capital. e. cash flow to shareholders minus net capital spending minus the change in net working capital. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW FROM ASSETS TYPE: DEFINITIONS 8. The cash generated from a firm's normal business activities is referred to as the firm's: a. net profit. b. addition to retained earnings. c. operating margin. d. addition to net working capital. E. operating cash flow. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: OPERATING CASH FLOW TYPE: DEFINITIONS 9. Free cash flow is equal to: a. net income plus depreciation. B. cash flow from assets. c. earnings before interest and taxes plus depreciation minus taxes. d. cash flow to shareholders. e. the addition to retained earnings. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: FREE CASH FLOW TYPE: DEFINITIONS 2-3 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 10. When net new borrowings are subtracted from the interest payments a firm pays to its creditors the result is called the: A. cash flow to creditors. b. free cash flow. c. cash flow from assets. d. operating cash flow. e. change in net working capital. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW TO CREDITORS TYPE: DEFINITIONS 11. Cash flow to stockholders is defined as: a. cash flow from assets plus cash flow to creditors. b. operating cash flow minus cash flow to creditors. c. dividends paid plus the change in retained earnings. D. dividends paid minus net new equity raised. e. net income minus the addition to retained earnings. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW TO STOCKHOLDERS TYPE: DEFINITIONS 2-4 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 12. Which of the following are classified as tangible fixed assets? I. inventory II. machinery III. patents IV. building a. I and IV only b. II and III only C. II and IV only d. I and III only e. II, III, and IV only BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: TANGIBLE FIXED ASSETS TYPE: CONCEPTS 13. Trademarks are classified as: a. short-term assets. b. current liabilities. c. long-term debt. d. tangible fixed assets. E. intangible fixed assets. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: INTANGIBLE FIXED ASSETS TYPE: CONCEPTS 14. Which one of the following is classified as a current asset? a. land b. accounts payable c. equipment D. inventory e. note payable BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: CURRENT ASSET TYPE: CONCEPTS 2-5 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 15. Over the past year, a firm increased its current assets and decreased its current liabilities. As a result, the firm's net working capital: A. had to increase. b. had to decrease. c. could have remained constant. d. could have either increased, decreased, or remained constant. e. was unaffected as the changes occurred in the firm's current accounts. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: CONCEPTS 16. Which one of the following is included in net working capital? a. mortgage on a building payable over the next thirty years B. bill payable to a supplier for the purchase of inventory c. equipment with a useful life of six years d. five-year bonds issued to the general public e. depreciation on a fixed asset BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: CONCEPTS 17. Shareholders' equity is equal to: a. total assets plus total liabilities. b. net fixed assets minus total liabilities. C. fixed assets minus long-term debt plus net working capital. d. net working capital plus total assets. e. total assets minus net working capital. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: SHAREHOLDERS' EQUITY TYPE: CONCEPTS 2-6 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 18. Shareholders' equity includes which of the following? I. paid in surplus II. bonds payable III. common stock IV. retained earnings a. II and III only b. I and IV only c. III and IV only D. I, III, and IV only e. I, II, III, and IV BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: SHAREHOLDERS' EQUITY TYPE: CONCEPTS 19. Which one of the following statements is correct? a. Accounts payable is the amount due from customers. B. Net working capital can be positive, negative, or zero. c. Bonds are included in net working capital. d. The amount of retained earnings is found on the income statement. e. Depreciation increases total assets. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: CONCEPTS 20. All else equal, which one of the following will increase owners' equity? a. decrease in inventory b. increase in accounts payable C. increase in accounts receivable d. decrease in net working capital e. increase in notes payable BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: OWNERS' EQUITY TYPE: CONCEPTS 2-7 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 21. Which one of the following will increase the net working capital of a firm? A. obtaining a 3-year loan to purchase inventory b. collecting payment from a customer c. obtaining a 5-year loan to buy equipment d. paying a supplier for a recent purchase e. making a payment on a long-term debt BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: CONCEPTS 22. Which of the following will increase the liquidity level of a firm? I. the purchase of inventory for cash II. the sale of inventory on credit III. the sale of inventory for cash IV. the collection of accounts receivable a. III only b. IV only c. III and IV only d. I, II, and III only E. II, III, and IV only BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: LIQUIDITY TYPE: CONCEPTS 2-8 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 23. Highly liquid assets: I. increase the probability a firm will face financial distress. II. decrease the probability a firm will face financial distress. III. generally produce a high rate of return. IV. generally produce a low, if any, rate of return. a. I only b. II only c. I and III only d. II and III only E. II and IV only BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: LIQUIDITY TYPE: CONCEPTS 24. Financial leverage: I. decreases the potential returns to shareholders. II. increases the potential returns to shareholders. III. decreases the likelihood the firm will face financial distress. IV. increases the likelihood the firm will face financial distress. a. I only b. IV only c. I and III only d. I and IV only E. II and IV only BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: FINANCIAL LEVERAGE TYPE: CONCEPTS 2-9 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 25. Which one of the following statements concerning market and book values is correct? a. The market value of accounts receivable is generally much lower than the book value of those receivables. B. The market and book values of current assets tend to be relatively equal. c. The market value of fixed assets will always exceed the book value of those assets. d. Book values represent the amount of cash that will be received if an asset is sold. e. The current book value of equipment purchased last year is equal to the initial cost of the equipment. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: MARKET AND BOOK VALUES TYPE: CONCEPTS 26. Which of the following are included in the market value of a firm but not in the book value? I. technical knowledge of the employees II. quality of the management team III. experience of the employees IV. reputation of the firm a. IV only b. I and III only c. II and IV only d. I, II, and III only E. I, II, III, and IV BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: MARKET AND BOOK VALUES TYPE: CONCEPTS 2-10 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 27. Which one of the following statements is correct concerning market and book values? a. Market values must be greater than or equal to book values. b. Both the book value and the market value of land decrease over time. c. The book value of an asset can increase over time. D. Book values are affected by the depreciation method used. e. Market values are more predictable than book values. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: MARKET AND BOOK VALUE TYPE: CONCEPTS 28. Which one of the following statements is correct? a. Market value is the amount of cash the owner hopes to receive if an asset is sold. b. Market value is equal to the replacement value of an asset. C. Book value is equal to the initial cost minus the depreciation to date. d. Book value is the greater of the depreciated cost or the current market value. e. Book value is the greater of the initial cost or the current market value. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: BOOK AND MARKET VALUES TYPE: CONCEPTS 29. Which one of the following statements concerning the balance sheet is correct? a. Total assets equal total liabilities minus total equity. b. Net working capital is equal total assets minus current liabilities. c. Net fixed assets are equal to the initial cost of all the firm's long-term assets. d. Current assets are equal to total assets minus net working capital. E. Shareholders' equity is equal to net working capital plus net fixed assets minus long-term debt. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: SHAREHOLDERS' EQUITY TYPE: CONCEPTS 2-11 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 30. An income statement: a. reveals the net cash flows of a firm over a stated period of time. b. reflects the financial position of a firm as of a particular date. C. shows the revenue and expenses based upon selected accounting methods. d. records revenue only when cash is received for the product or service provided. e. records expenses based on the recognition principle. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: CONCEPTS 31. Which of the following will increase the net income of a profitable firm? I. decreasing the depreciation II. increasing the variable cost per unit III. decreasing fixed costs IV. increasing revenue a. III and IV only b. I and IV only C. I, III, and IV only d. II, III, and IV only e. I, II, and III only BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: NET INCOME TYPE: CONCEPTS 2-12 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 32. Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle? I. when payment is collected for the sale of a good or service II. when the earnings process is virtually completed III. when the value of a sale can be reliably determined IV. when a product is physically delivered to the buyer's location a. I and II only b. I and IV only C. II and III only d. II and IV only e. I and III only BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: RECOGNITION PRINCIPLE TYPE: CONCEPTS 33. Depreciation: a. increases the net income. b. increases the net fixed assets. c. affects cash but not the net income. d. is a revenue item. E. is a noncash expense. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: DEPRECIATION TYPE: CONCEPTS 2-13 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 34. The matching principle advocates that: a. costs should be recorded on the income statement whenever those costs can be reliably determined. b. costs should be recorded when paid. C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. d. sales should be recorded only when the sale is matched with a cash receipt. e. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: MATCHING PRINCIPLE TYPE: CONCEPTS 35. The matching principle advocates: a. recording inventory purchases as soon as payment occurs. b. recording costs when the liability for those costs occurs. c. matching cash flows with net income. D. matching costs with revenues. e. matching current assets with current liabilities. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: MATCHING PRINCIPLE TYPE: CONCEPTS 36. The income statement reflects: a. income and expenses at the time when those items affect the cash flows of a firm. B. income and expenses in accordance with GAAP. c. the cash flows in accordance with GAAP. d. the flow of cash into and out of a firm during a stated period of time. e. the flow of cash into and out of a firm as of a particular date. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: CONCEPTS 2-14 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 37. The income statement for Martin Industries had a negative net income for last year. Given this, you can assume the: a. cash flow from assets was also negative. b. operating cash flow was also negative. c. cash flow to shareholders was negative. d. cash flow to shareholders was zero. E. operating cash flow was either negative, positive, or zero, but you cannot determine which one. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: CONCEPTS 38. The cost of goods sold: a. is equal to the variable cost per unit multiplied by the number of units sold. b. is equal to the fixed costs of production for the time period. c. includes all manufacturing costs incurred during the income statement period. d. includes period costs only. E. includes both the fixed and the variable costs of producing the items included in revenue. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: COST OF GOODS SOLD TYPE: CONCEPTS 39. The selling, general, and administrative costs are: A. period costs. b. included in cost of goods sold. c. treated as variable production costs. d. capitalized and expensed over time. e. all fixed amounts incurred on a monthly basis. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: CONCEPTS 2-15 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 40. Firms that compile financial statements according to GAAP: a. must record income and expenses whenever cash flows are affected. B. still have some discretion over the timing of recording both revenue and expense items. c. must record all expenses when incurred. d. only record income when payment in full is received. e. record both income and expenses as soon as the amount for each can be ascertained. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: INCOME STATEMENT TYPE: CONCEPTS 41. Which one of the following best exemplifies the concept of a marginal tax? a. Southern Mills paid $3.2 million more in taxes last year than its competitor, Eastern Mills. b. Jefferson-Knight paid $2.1 million in taxes last year on revenue of $6.8 million. C. As the result of opening a new store, Northern Lights owed an additional $1.1 million in taxes. d. Alpha Industries received a tax refund due to an error in its tax return that the IRS discovered. e. High Water Adventures paid $0.18 in tax for every $1 in taxable income last year. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: MARGINAL TAX TYPE: CONCEPTS 42. Which one of the following will increase the cash flow from assets, all else constant? a. an increase in net capital spending b. a decrease in the cash flow to creditors C. an increase in depreciation d. an increase in the change in net working capital e. a decrease in dividends paid BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: CHALLENGE SECTION: 2.4 TOPIC: CASH FLOW FROM ASSETS TYPE: CONCEPTS 2-16 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 43. A positive cash flow to creditors indicates a firm: a. borrowed more than it repaid for the period. b. repaid more principal on its loans than it borrowed for the period. c. has less debt at the end of the period than it had at the beginning of the period. d. has more debt at the end of the period than it had at the beginning of the period. E. paid more cash to its creditors than it received from them for the period. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW TO CREDITORS TYPE: CONCEPTS 44. If a firm has a negative cash flow from assets every year for several years, the firm: A. is probably either financially distressed or continuously increasing in size. b. is downsizing. c. must be operating at a high level of efficiency. d. must be reducing a heavy debt load on an annual basis. e. has to be incurring net losses on an annual basis. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW FROM ASSETS TYPE: CONCEPTS 45. Operating cash flow increases when: A. depreciation increases. b. period costs increase. c. interest paid decreases. d. revenues decrease. e. the cost of goods sold increases. BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: OPERATING CASH FLOW TYPE: CONCEPTS 2-17 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 46. A non-dividend paying firm sold 10,000 additional shares of stock this last year. No shares were repurchased. The cash flow statement for the year must have a: a. positive operating cash flow. b. negative cash flow from assets. C. negative cash flow to stockholders. d. negative operating cash flow. e. positive cash flow to stockholders. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW TO STOCKHOLDERS TYPE: CONCEPTS 47. Net capital spending is equal to: A. ending net fixed assets minus beginning net fixed assets plus depreciation. b. beginning net fixed assets minus ending net fixed assets plus depreciation. c. ending net fixed assets minus beginning net fixed assets minus depreciation. d. ending total assets minus beginning total assets plus depreciation. e. ending total assets minus beginning total assets minus depreciation. BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: NET CAPITAL SPENDING TYPE: CONCEPTS 48. A decrease in net working capital for the period: a. decreases the cash flow from assets. b. indicates a firm has sold some of its long-term assets. c. is caused by a firm purchasing additional fixed assets. d. is generally caused by an increase in the inventory level. E. is a cash inflow for the firm. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: NET WORKING CAPITAL TYPE: CONCEPTS 2-18 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 49. All else equal, which of the following will decrease net working capital? I. decrease in accounts receivable II. increase in inventory III. decrease in cash IV. increase in accounts payable a. I and III only b. II and IV only c. I and II only d. III and IV only E. I, III, and IV only BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: NET WORKING CAPITAL TYPE: CONCEPTS 50. Operating cash flow is equal to: a. Earnings before interest and taxes Depreciation + Taxes. b. Cash flow from assets Change in net working capital + Net capital spending. C. Cash flow from assets + Net capital spending + Change in net working capital. d. Earnings before interest and taxes Change in net working capital Net capital spending. e. Earnings before interest and taxes Depreciation Taxes. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: OPERATING CASH FLOW TYPE: CONCEPTS 2-19 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 51. Cash flow to creditors is equal to interest paid minus: a. net working capital. b. beginning total debt minus ending total debt. c. beginning long-term debt minus ending long-term debt. d. ending total debt minus beginning total debt. E. ending long-term debt minus beginning long-term debt. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW TO CREDITORS TYPE: CONCEPTS 52. Cash flow to stockholders: a. is equal to the cash flow from assets plus the cash flow to creditors. b. measures the cash flow between a firm and its debtors. c. should be negative when the number of shares of stock issued remains constant for the period. D. is positive when the amount of the dividends paid exceeds the amount of net new equity raised. e. is negative when a firm increases its borrowing to finance a new business venture. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW TO STOCKHOLDERS TYPE: CONCEPTS 53. A negative cash flow to stockholders indicates a firm has: a. increased both its debt and its equity borrowing. b. reduced owners' equity. c. issued dividends. D. sold additional shares of stock. e. incurred net losses. BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW TO STOCKHOLDERS TYPE: CONCEPTS 2-20 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 54. Highland, Inc. has total assets of $16,200, net working capital of $3,900, owner's equity of $8,500, and long-term debt of $6,000. What is the value of the current assets? a. $2,500 B. $5,600 c. $6,300 d. $9,900 e. $10,200 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: CURRENT ASSETS TYPE: PROBLEMS 55. Anderson Enterprises currently has $400 in cash. The company owes $1,200 to suppliers for merchandise and $4,500 to the bank for a long-term loan. Customers owe Anderson's $1,900. The inventory has a book value of $3,700 and an estimated market value of $4,400. If Anderson's compiled a financial statement today, how much would it show as the value of the current assets? a. $5,200 b. $5,600 C. $6,000 d. $6,300 e. $6,700 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: CURRENT ASSETS TYPE: PROBLEMS 2-21 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 56. The Bake Shoppe has net working capital of $6,100, long-term debt of $10,400, total debt of $15,200, and owners' equity of $18,900. What is the value of The Bake Shoppe's net fixed assets? a. $12,800 b. $16,500 c. $18,900 d. $21,300 E. $23,200 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: NET FIXED ASSETS TYPE: PROBLEMS 57. Conway & Sons had $26,500 in net fixed assets at the beginning of the year. During the year, the company purchased $5,700 in new equipment. It also sold, at a price of $1,000, some old equipment with a book value of $850. The depreciation expense for the year was $4,300. What is the net fixed asset balance at the end of the year? a. $15,650 b. $20,800 c. $26,900 D. $27,050 e. $31,200 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: NET FIXED ASSETS TYPE: PROBLEMS 2-22 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 58. The Furnishings Co. has ending net fixed assets of $67,100 and beginning net fixed assets of $43,800. During the year, the firm sold assets with a total book value of $9,500 and also recorded $7,000 in depreciation expense. How much did The Furnishings Co. spend to buy new fixed assets? a. $6,800 b. $16,300 c. $23,300 d. $32,800 E. $39,800 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: FIXED ASSETS TYPE: PROBLEMS 59. Grandel, Inc. has current liabilities of $10,200 and accounts receivable of $14,800. The firm has total assets of $39,700 and net fixed assets of $18,900. The owners' equity has a book value of $16,500. What is the amount of the net working capital? A. $10,600 b. $20,800 c. $23,200 d. $25,400 e. $31,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: PROBLEMS 2-23 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 60. Joe's Store has net working capital of $1,800, total assets of $12,600, and net fixed assets of $9,700. What is the value of the current liabilities? A. $1,100 b. $2,900 c. $4,700 d. $7,900 e. $10,800 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: CURRENT LIABILITIES TYPE: PROBLEMS 61. Smith Motors reports the following account balances: inventory of $33,100, equipment of $84,400, accounts payable of $16,900, cash of $5,000, and accounts receivable of $22,600. How much does the firm have in net working capital? a. $38,800 B. $43,800 c. $55,700 d. $67,500 e. $72,600 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: NET WORKING CAPITAL TYPE: PROBLEMS 2-24 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 62. Equitable Sales has total owner's equity of $14,500. The firm has current assets of $4,900, current liabilities of $1,200, and total assets of $20,100. What is the value of the long-term debt? a. $700 b. $2,500 c. $3,700 D. $4,400 e. $5,600 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: LONG-TERM DEBT TYPE: PROBLEMS 63. Southside, Inc. has beginning long-term debt of $47,500, which is the principal balance of a loan payable to The North Savings Bank. During the year, the company paid a total of $19,000 to the bank, including $3,800 of interest. The company also borrowed $7,000. What is the value of the ending long-term debt? a. $25,500 b. $35,500 C. $39,300 d. $62,700 e. $66,500 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: LONG-TERM DEBT TYPE: PROBLEMS 2-25 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 64. Unique Pottery has beginning retained earnings of $24,000. For the year, the company earned net income of $3,000 and paid dividends of $1,000. The company also issued $5,000 worth of new stock. What is the value of the retained earnings account at the end of the year? A. $26,000 b. $27,000 c. $29,000 d. $30,000 e. $31,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: RETAINED EARNINGS TYPE: PROBLEMS 65. Cindy's Crafts had beginning retained earnings of $51,200. During the year, the company reported sales of $112,400, costs of $75,800, depreciation of $9,100, dividends of $1,500, and interest paid of $2,300. The tax rate is 34 percent. What is the retained earnings balance at the end of the year? a. $64,832 b. $65,342 C. $66,332 d. $67,850 e. $69,350 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: RETAINED EARNINGS TYPE: PROBLEMS 2-26 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 66. The owners' equity in Jack's Taylor Shop was $31,300 at the beginning of the year. During the year, the company had aftertax income of $4,900, of which $1,600 was paid in dividends. Also during the year, the company repurchased $2,000 of stock from one of the shareholders. What is the value of the owners' equity at year end? A. $32,600 b. $34,600 c. $35,800 d. $36,200 e. $37,800 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: OWNERS' EQUITY TYPE: PROBLEMS 67. Farm Fresh Vegetables, Inc. has net working capital of $3,400, net fixed assets of $30,100, current liabilities of $4,700, and long-term debt of $11,500. What is the value of the owners' equity? a. $13,900 b. $17,300 c. $20,700 D. $22,000 e. $25,400 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: OWNERS' EQUITY TYPE: PROBLEMS 2-27 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 68. Bella's Boutique has cash of $2,900 and accounts receivable of $4,200. The inventory cost $6,300 and can be sold today for $8,800. The fixed assets were purchased at a cost of $50,500 of which $23,200 has been depreciated. The fixed assets can be sold today for $25,000. What is the total book value of the assets of Bella's? a. $17,700 b. $18,400 c. $38,900 D. $40,700 e. $63,900 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: BOOK VALUE TYPE: PROBLEMS 69. Alfonzo's Pizzeria purchased its building 8 years ago at a cost of $76,000. The building is currently valued at $212,000. Alfonzo's has other fixed assets that cost $58,000 and are currently valued at $69,000. To date, Alfonzo's has recorded a total of $83,000 in depreciation on the various assets. The company has current liabilities of $43,000 and net working capital of $32,000. What is the total book value of the assets of Alfonzo's Pizzeria? a. $40,000 b. $94,000 C. $126,000 d. $155,000 e. $187,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: BOOK VALUE TYPE: PROBLEMS 2-28 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 70. The financial statements of Classic Collectables reflect cash of $15,800, accounts receivable of $31,600, accounts payable of $40,100, inventory of $54,700, long-term debt of $60,000, and net fixed assets of $99,500. The firm estimates that if it wanted to cease operations today it could sell the inventory for $39,000 and the fixed assets for $77,000. What is the market value of the assets? a. $63,300 b. $101,500 C. $163,400 d. $181,700 e. $201,600 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: BASIC SECTION: 2.1 TOPIC: MARKET VALUE TYPE: PROBLEMS 71. Premium Pet Supplies has sales of $98,400. The costs of goods sold are $55,000 and the other costs are $21,000. Depreciation is $12,000 and the tax rate is 35 percent. What is the net income of the company? a. $2,560 b. $3,640 C. $6,760 d. $10,400 e. $14,560 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: NET INCOME TYPE: PROBLEMS 2-29 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 72. Precious Gems Jewelry has sales of $267,400 and costs of $200,800. The depreciation expense is $36,100. Interest paid equals $19,700 and dividends paid equal $4,500. The tax rate is 34 percent. What is the amount of the addition to retained earnings? a. $828 b. $1,142 C. $2,628 d. $3,672 e. $4,158 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: ADDITION TO RETAINED EARNINGS TYPE: PROBLEMS 73. Last year, Sally's Studio added $2,300 to retained earnings from sales of $66,800. The company had costs of $52,300, dividends of $1,000, and interest paid of $900. The tax rate was 34 percent. What was the amount of the depreciation expense? a. $4,200 b. $6,800 C. $8,600 d. $9,500 e. $14,500 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: DEPRECIATION TYPE: PROBLEMS 2-30 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 74. Douglass, Inc. has sales of $132,000, costs of $103,000, depreciation expense of $11,000, and interest paid of $4,100. The tax rate is 34 percent. How much net income did Douglass, Inc. earn for the period? a. $5,434 B. $9,174 c. $11,800 d. $16,434 e. $18,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: NET INCOME TYPE: PROBLEMS 75. Bluff, Inc. incurred depreciation expenses of $48,500 last year. The sales were $358,900 and the addition to retained earnings was $39,400. The firm paid interest of $14,300 and dividends of $10,000. The tax rate was 35 percent. What was the amount of the costs incurred by the firm for last year? a. $215,100 B. $220,100 c. $245,800 d. $248,700 e. $286,100 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: COSTS TYPE: PROBLEMS 2-31 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 76. Donovan, Inc. owes a total of $17,129 in taxes for this year. The taxable income is $68,556. If Donovan earns $100 more in income, it will owe an additional $35 in taxes. What is Donovan's average tax rate on income of $68,656? a. 15 percent b. 21 percent C. 25 percent d. 34 percent e. 35 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.3 TOPIC: AVERAGE TAX RATE TYPE: PROBLEMS 77. Sea Harbor, Inc. has a marginal tax rate of 35 percent and an average tax rate of 22 percent. If the firm earns $79,500 in taxable income, how much will it owe in taxes? a. $10,335 b. $16,695 C. $17,490 d. $27,030 e. $27,825 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: AVERAGE TAX RATE TYPE: PROBLEMS 2-32 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 78. Phillip's Painting owes $24,780 in tax on a taxable income of $99,870. The company has determined that it will owe $27,060 in tax if its taxable income rises to $105,870. What is the marginal tax rate at this level of income? a. 15 percent b. 25 percent c. 34 percent D. 38 percent e. 39 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: MARGINAL TAX RATE TYPE: PROBLEMS 79. Use the following tax table to answer this question: Andrew's Pro Shop has taxable income of $389,745. How much does Andrew's owe in taxes? a. $113,900 b. $132,013 c. $132,251 D. $132,513 e. $152,001 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: TOTAL TAX TYPE: PROBLEMS 2-33 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 80. Use the following tax table to answer this question: Riddell, Inc. earned $144,320 in taxable income for the year. How much tax does the company owe on this income? A. $39,535 b. $49,069 c. $51,285 d. $56,285 e. $78,535 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: TOTAL TAX TYPE: PROBLEMS 2-34 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 81. Crabtree, Inc. has an operating cash flow of $164,900, depreciation expense of $93,100, and taxes paid of $80,400. A partial listing of its balance sheet accounts is as follows: What is the amount of Crabtree's cash flow from assets? a. $49,100 b. $69,800 c. $107,200 D. $120,400 e. $200,300 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW FROM ASSETS TYPE: PROBLEMS 82. Baldwin, Inc. paid $18,500 in dividends and $44,600 in interest over the past year while net working capital increased from $10,200 to $28,200. The company purchased $30,000 in net new fixed assets and had depreciation expenses of $15,700. During the year, the firm issued $45,000 in net new equity and paid off $16,000 in long-term debt. What is the amount of Baldwin's cash flow from assets? a. $3,700 b. $18,000 c. $30,200 D. $34,100 e. $48,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW FROM ASSETS TYPE: PROBLEMS 2-35 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 83. Solomon, Inc. has net sales of $745,100 and costs of $590,800. The depreciation expense is $82,600 and the interest paid is $15,500. What is the amount of the firm's operating cash flow if the tax rate is 35 percent? a. $46,605 b. $52,030 c. $71,700 d. $105,720 E. $134,630 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: OPERATING CASH FLOW TYPE: PROBLEMS 84. United Enterprises paid $12,000 in dividends and $21,300 in interest over the past year. Sales totaled $139,700 with costs of $101,400. The depreciation expense was $10,500. The applicable tax rate is 34 percent. What is the amount of the operating cash flow? a. $25,590 b. $27,072 c. $32,928 D. $36,090 e. $38,300 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: OPERATING CASH FLOW TYPE: PROBLEMS 2-36 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 85. The balance sheet of a firm shows beginning net fixed assets of $410,200 and ending net fixed assets of $364,600. The depreciation expense for the year is $35,800. What is the amount of the net capital spending for the year? a. $45,600 B. $9,800 c. $9,800 d. $45,600 e. $81,400 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: NET CAPITAL SPENDING TYPE: PROBLEMS 86. The financial statements of The Equipment Outlet reflect depreciation expenses of $41,800 and interest expenses of $35,200 for the year. The current assets increased by $19,700 and the net fixed assets increased by $34,900. What is the amount of the net capital spending for the year? a. $34,900 b. $54,600 c. $61,500 D. $76,700 e. $96,400 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: NET CAPITAL SPENDING TYPE: PROBLEMS 2-37 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 87. Fallway, Inc. had current assets of $121,800 and current liabilities of $114,300 last year. This year, the current assets are $118,600 and the current liabilities are $100,400. The depreciation expense for the past year is $13,500 and the interest paid is $3,000. What is the amount of the change in net working capital? a. $18,200 b. $7,700 c. $5,800 D. $10,700 e. $21,200 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CHANGE IN NET WORKING CAPITAL TYPE: PROBLEMS 88. The balance sheet of Retailers, Inc. has the following balances: What is the amount of the change in net working capital? A. $13,000 b. $4,200 c. $4,200 d. $13,000 e. $23,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CHANGE IN NET WORKING CAPITAL TYPE: PROBLEMS 2-38 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 89. During the past year, the Rawlins Co. paid $234,800 in interest along with $75,000 in dividends. The company issued $50,000 of stock and $200,000 of new debt. The company reduced the balance due on the old debt by $325,000. What is the amount of the cash flow to creditors for the year? a. $125,000 b. $325,000 C. $359,800 d. $384,800 e. $434,800 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW TO CREDITORS TYPE: PROBLEMS 90. A firm has earnings before interest and taxes of $77,960 with a net income of $18,580. The taxes amounted to $21,310 for the year. During the year, the firm paid out $60,000 to pay off existing debt and then later borrowed an additional $125,000. What is the amount of the cash flow to creditors? a. $43,690 B. $26,930 c. $56,650 d. $103,070 e. $121,650 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW TO CREDITORS TYPE: PROBLEMS 2-39 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 91. The balance sheet of a firm shows current liabilities of $62,400 and long-term debt of $205,900 as of last year. Current liabilities are $50,600 and long-term debt is $216,300 as of today, which is the end of the current year. The income statement for the current year displays an interest paid amount of $8,200. What is the amount of the net new borrowing for the current year? a. $1,400 b. $2,200 c. $3,600 D. $10,400 e. $11,800 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: NET NEW BORROWING TYPE: PROBLEMS 92. For the past year, the XYZ Co. had cash flow from assets of $45,700, of which $19,800 flowed to the firm's stockholders. The interest paid was $1,200. What is the amount of the net new borrowing for the year? a. $27,100 b. $25,900 C. $24,700 d. $24,700 e. $25,900 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: NET NEW BORROWING TYPE: PROBLEMS 2-40 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 93. Six months ago, Tuchman Industries repurchased $50,000 of its common stock. The company pays regular semiannual dividends totaling $13,000 per period. What is the amount of the cash flow to stockholders for the past year if no additional shares were issued? a. $37,000 b. $50,000 c. $63,000 D. $76,000 e. $102,000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.4 TOPIC: CASH FLOW TO STOCKHOLDERS TYPE: PROBLEMS 94. Somerset, Inc. has an operating cash flow of $331,000 and a cash flow to creditors of $79,500 for the past year. During that time, the firm invested $40,000 in net working capital and incurred net capital spending of $103,600. What is the amount of the cash flow to stockholders for the last year? a. $64,100 B. $107,900 c. $147,900 d. $183,100 e. $187,900 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW TO STOCKHOLDERS TYPE: PROBLEMS 2-41 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 95. A firm has net income for the year of $32,600. At the beginning of the year, the firm had common stock of $88,000, paid-in surplus of $154,000, and retained earnings of $29,000. At the end of the year, the firm had common stock of $103,000, paid-in surplus of $173,400, and retained earnings of $40,500. The firm does not pay dividends. What is the amount of the net new equity raised during the year? a. $15,000 b. $19,400 c. $26,500 D. $34,400 e. $45,900 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: NET NEW EQUITY TYPE: PROBLEMS 96. For the year, the Bridgewater Co. has net income of $27,400, net new equity of $12,000, and an addition to retained earnings of $19,600. What is the amount of the dividends paid? a. $4,200 B. $7,800 c. $15,400 d. $31,600 e. $39,400 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: BASIC SECTION: 2.2 TOPIC: DIVIDENDS TYPE: PROBLEMS 2-42 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 97. The ABC Co. has sales of $264,200, costs of $185,600, and interest paid of $11,200. The depreciation expense is $36,900 and the tax rate is 34 percent. At the beginning of the year, the firm had retained earnings of $171,500 and common stock of $300,000. At the end of the year, the firm has retained earnings of $164,700 and common stock of $350,000. What is the amount of the dividends paid for the year? a. $13,330 b. $20,678 C. $26,930 d. $34,322 e. $37,684 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.2 TOPIC: DIVIDENDS TYPE: PROBLEMS 2-43 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 98. Preston, Inc. has compiled the following information: In whole dollars, the operating cash flow for 2007 is _____ and for 2008 it is _____. a. $2,872; $4,279 b. $2,996; $4,262 c. $3,427; $5,087 D. $3,731; $5,087 e. $3,731; $5,606 BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: OPERATING CASH FLOW TYPE: PROBLEMS 2-44 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 99. Preston, Inc. has compiled the following information: For 2008, the cash flow from assets is _____, the cash flow to creditors is _____, and the cash flow to stockholders is _____. A. $4,487; $1,471; $3,016 b. $4,487; $646; $5,133 c. $4,797; $1,471; $3,326 d. $5,087; $2,071; $3,016 e. $5,224; $825; $4,399 BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: CHALLENGE SECTION: 2.4 TOPIC: CASH FLOWS TYPE: PROBLEMS 2-45 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross Essay Questions 100. Explain the types of adjustments investors must make to a firm's book value to determine the actual market value of a firm. The book value must be adjusted in two primary ways. First, the book value of the assets and liabilities must be adjusted to reflect current market values. Second, items that do not appear on the balance sheet must be considered. These include such things as the firm's reputation, customer loyalty, employee knowledge and experience, and the expertise and teamwork of the managers. BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 1 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.1 TOPIC: BOOK AND MARKET VALUE 101. Explain the difference between a firm's net income and its operating cash flow. Net income is an accounting measure of revenues and expenses based on GAAP. Operating cash flow is a measure of net cash flows that includes revenues and cash expenses, excluding interest. Thus, the primary difference between net income and operating cash flow is composed of the value of the depreciation expense plus the interest expense. BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: ACCOUNTING INCOME AND OPERATING CASH FLOW 102. You are analyzing a new project. To estimate the potential operating cash flows you need to estimate the tax liability. What tax rate should you apply to this project and why? The marginal tax rate should be used as the marginal rate is the rate that applies to any additional taxable income generated. BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 3 LEVEL OF DIFFICULTY: BASIC SECTION: 2.3 TOPIC: MARGINAL AND AVERAGE TAX RATES 2-46 Full file at http://testbank360.eu/test-bank-essentials-of-corporate-finance-6th-edition-ross 103. Identify and describe the types of cash flows that occur between a firm and its long-term creditors. Explain how the values of these cash flows are determined. A firm borrows money, which is a cash inflow for the firm. The firm then repays both principal and interest on the borrowed funds which are cash outflows for the firm. The interest paid is found on the income statement while the net principal borrowed or repaid is determined by comparing the ending long-term debt to the beginning long-term debt. BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 4 LEVEL OF DIFFICULTY: INTERMEDIATE SECTION: 2.4 TOPIC: CASH FLOW TO CREDITORS 2-47