Question 1

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?

Accepted Answer

A)   $27.50
B)   $28.88
C)   $30.32
D)   $31.83E) B) and C)
F) None of the above

Question 2

Which of the following statements best describes the tax system?

Accepted Answer

A)   For small Canadian-controlled private corporations, income less than $400,000 is exempt from taxes. Thus, government receives no tax revenue from these businesses.
B)   All businesses, regardless of their legal form of organization, are taxed by the Canada Revenue Agency (CR
A)  .
C)   Corporate income taxes are influenced by the size and location of the companies and their income types.
D)   All corporations other than nonprofit corporations are subject to corporate income taxes, which are 29% for the lowest amounts of income and 35% for the highest amounts of income.E) B) and D)
F) None of the above

Question 3

Below is the common equity section (in millions)  of Teweles Technology's last two year-end balance sheets:  Teweles has never paid a dividend to its common shareholders. Which of the following statements is correct?

Accepted Answer

A)   The company's net income in 2009 was higher than in 2008.
B)   Teweles issued common stock in 2006.
C)   The market price of Teweles's stock doubled in 2009.
D)   The company has more equity than debt on its balance sheet.E) B) and C)
F) A) and B)

Question 4

Which of the following would be most likely to occur in the year when companies have to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and the same depreciation method is used for tax and shareholder reporting purposes.

Accepted Answer

A)   Companies' NOPAT would decline.
B)   Companies' physical stocks of fixed assets would increase.
C)   Companies' net cash flows would increase.
D)   Companies' cash positions would decline.E) C) and D)
F) B) and D)

Question 5

Which of the following statements best describes the balance sheet?

Accepted Answer

A)   The balance sheet for a given year is designed to give us an idea of what happened to the firm during that year.
B)   The balance sheet for a given year tells us how much money the company earned during that year.
C)   For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet.
D)   A balance sheet lists the assets that will be converted to cash first, and then goes on down to list the longest-lived ones last.E) B) and C)
F) B) and D)

Question 6

Over the years, Janjigian Corporation's shareholders have provided $15,250 of capital, part when they purchased new issues of stock and part when they allowed management to retain some of the firm's earnings. The firm now has 1,000 shares of common share outstanding, and it sells at a price of $42.00 per share. How much value has Janjigian's management added to stockholder wealth over the years, i.e., what is Janjigian's MVA?

Accepted Answer

A)   $22,935
B)   $24,142
C)   $25,413
D)   $26,750E) A) and B)
F) All of the above

Question 7

Which of the following statements best describes the tax system?

Accepted Answer

A)   Since companies can deduct dividends paid but not interest paid, such a tax system favours the use of equity financing over debt financing.
B)   Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate.
C)   The maximum federal personal tax rate in 2009 is 35%.
D)   Ordinary corporate operating losses can be carried back to each of the preceding 10 years and forward for the next 3 years and used to offset taxable income in those years.E) None of the above
F) A) and D)

Question 8

Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Accepted Answer

A) True 
 B)False

Question 9

Retained earnings are the existing shareholders' reinvested profit and do not represent cash.

Accepted Answer

A) True 
 B)False

Question 10

Assume that Bev's Beverages Inc. (BBI)  can double its depreciation expense for the upcoming year while sales revenue and tax rate remain. Prior to the change, BBI's net income after taxes was forecasted to be $4 million. Which of the following best describes the impact on BBI's financial statements versus the statements before the change? Assume that the company uses the same depreciation method for tax and shareholder reporting purposes.

Accepted Answer

A)   The provision will reduce the company's net cash flow.
B)   The provision will increase the company's tax payments.
C)   Net fixed assets on the balance sheet will increase.
D)   Net fixed assets on the balance sheet will decrease.E) A) and C)
F) A) and D)

Question 11

The standard financial statements prepared by accountants have to be modified for managerial purposes. Related to these modifications, which of the following statements is correct?

Accepted Answer

A)   The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
B)   The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units.
C)   The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide.
D)   The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.E) A) and D)
F) B) and C)

Question 12

Formed in 2005, ABC Ltd. had taxable income of $95,000 in 2005; $70,000 in 2006; $55,000 in 2007; $80,000 in 2008, and -$150,000 in 2009. What is the adjusted corporate tax payment in 2009? Assume that ABC is a CCPC in Manitoba with a combined federal and provincial corporate income tax rate of
13%)

Accepted Answer

A)   $17,150.00
B)   $18,100.00
C)   $19,500.00
D)   $20,550.00E) C) and D)
F) A) and D)

Question 13

Meric Mining Inc. recently reported $15,000 of sales, $7,500 of operating costs other than depreciation, and $1,200 of depreciation. The company had no amortization charges, it had outstanding $6,500 of bonds that carry a 6.25% interest rate, and its combined federal and provincial income tax rate was 35%. How much was the firm's net income after taxes? Meric uses the same depreciation expense for tax and shareholder reporting purposes.

Accepted Answer

A)   $3,284.55
B)   $3,457.42
C)   $3,639.39
D)   $3,830.94E) B) and D)
F) C) and D)

Question 14

The interest and dividends paid by a corporation are considered to be deductible operating expenses;
hence, they decrease the firm's tax liability.

Accepted Answer

A) True 
 B)False

Question 15

In 2009, XYZ Inc. located in Ontario had income from operation of $3,850,000, received interest of $150,000, paid $200,000 in interest, received dividends from another Canadian corporation of
$100,000, and paid $400,000 in dividends to its common shareholders. If the applicable income tax rate is 33%, what is the corporation's tax liability?

Accepted Answer

A)   $1,155,000
B)   $1,254,000
C)   $1,287,000
D)   $1,353,000E) A) and D)
F) All of the above

Question 16

The income statement shows the difference between a firm's income and its costs-i.e., its profits- during a specified period of time. However, not all reported income comes in the form or cash, and reported costs likewise may not correctly reflect cash outlays. Therefore, there may be a substantial difference between a firm's reported profits and its actual cash flow for the same period.

Accepted Answer

A) True 
 B)False

Question 17

EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT)  does the firm have?

Accepted Answer

A)   $81.23
B)   $85.50
C)   $90.00
D)   $94.50E) All of the above
F) B) and C)

Question 18

Which of the following statements best describes depreciation?

Accepted Answer

A)   The more depreciation a firm reports, the higher its tax bill, other things held constant.
B)   Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.
C)   Net Cash Flow = Net Income + Depreciation and Amortization Charges.
D)   Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits.E) None of the above
F) All of the above

Question 19

Tibbs Inc. had the following data for the year ending 12/31/06: Net income = $300; Net operating profit after taxes (NOPAT)  = $400; Total assets = $2,500; Short-term investments = $200; Shareholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,300. What was its return on invested capital (ROIC) ?

Accepted Answer

A)   14.91%
B)   15.70%
C)   16.52%
D)   17.39%E) A) and B)
F) B) and C)

Question 20

To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Accepted Answer

A) True 
 B)False

Exam 2: Financial Statements, Cash Flow, and Taxes

Correct Answer
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EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?

Correct Answer
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Which of the following statements best describes the tax system?

Correct Answer
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Correct Answer
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Correct Answer
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To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Correct Answer
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Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?

Correct Answer
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Correct Answer
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Correct Answer
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Which of the following statements best describes depreciation?

Correct Answer
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Which of the following statements best describes the tax system?

Correct Answer
verified

Which of the following statements best describes the balance sheet?

Correct Answer
verified

The interest and dividends paid by a corporation are considered to be deductible operating expenses; hence, they decrease the firm's tax liability.

Correct Answer
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Correct Answer
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Below is the common equity section (in millions) of Teweles Technology's last two year-end balance sheets: Teweles has never paid a dividend to its common shareholders. Which of the following statements is correct?

Correct Answer
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Which of the following would be most likely to occur in the year when companies have to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and the same depreciation method is used for tax and shareholder reporting purposes.

Correct Answer
verified

Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Correct Answer
verified

Retained earnings are the existing shareholders' reinvested profit and do not represent cash.

Correct Answer
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Formed in 2005, ABC Ltd. had taxable income of $95,000 in 2005; $70,000 in 2006; $55,000 in 2007; $80,000 in 2008, and -$150,000 in 2009. What is the adjusted corporate tax payment in 2009? Assume that ABC is a CCPC in Manitoba with a combined federal and provincial corporate income tax rate of 13%)

Correct Answer
verified

The standard financial statements prepared by accountants have to be modified for managerial purposes. Related to these modifications, which of the following statements is correct?

Correct Answer
verified

Exam 2: Financial Statements, Cash Flow, and Taxes

Correct AnswerverifiedShow Answer

EP Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?

Correct AnswerverifiedShow Answer

Which of the following statements best describes the tax system?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.

Correct AnswerverifiedShow Answer

Tucker Electronic System's current balance sheet shows total common equity of $3,125,000. The company has 125,000 shares of stock outstanding, and they sell at a price of $52.50 per share. By how much do the firm's market and book values per share differ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements best describes depreciation?

Correct AnswerverifiedShow Answer

Which of the following statements best describes the tax system?

Correct AnswerverifiedShow Answer

Which of the following statements best describes the balance sheet?

Correct AnswerverifiedShow Answer

The interest and dividends paid by a corporation are considered to be deductible operating expenses; hence, they decrease the firm's tax liability.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Below is the common equity section (in millions) of Teweles Technology's last two year-end balance sheets: Teweles has never paid a dividend to its common shareholders. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following would be most likely to occur in the year when companies have to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and the same depreciation method is used for tax and shareholder reporting purposes.

Correct AnswerverifiedShow Answer

Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Correct AnswerverifiedShow Answer

Retained earnings are the existing shareholders' reinvested profit and do not represent cash.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The standard financial statements prepared by accountants have to be modified for managerial purposes. Related to these modifications, which of the following statements is correct?

Correct AnswerverifiedShow Answer

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