FNCE 370 Lecture Notes - Lecture 10: Tax Rate, Capital Cost Allowance, Dividend Tax
Quiz Notes
1
The process of planning and managing a firm's investment in long-term assets is called capital budgeting
The owners of which of the following form of business organization has unlimited liability? General Partnership
& Sole Proprietorship
A form of business organization that is set up to hold all the debt and equity of an underlying business and to
distribute the income generated by that business to its owners is called an income trust
The primary goal of financial managers should be to maximize share price
Which of the following groups is NOT considered a stakeholder in an oil-producing firm? None of the above
Calculate the EBIT given the following information:
Sales = $100,000
Cost of goods sold = 60% of sales revenues
Interest expense = $7,500
Tax rate = 35%
Depreciation = 3,000
Dividend payout ratios = 30%
EBIT = $37,000
Which of the following is a non-cash item? Amortization
Given the following information, calculate the change in net working capital in 2010.
Balance Sheet
2009
2010
2009
2010
Cash
$100000
$115000
A/P
$80000
$45000
A/R
75000
86250
Notes Payable
35000
5158
Inv
115000
132250
Current Liabilities
115000
50158
Current Assets
290000
333500
Long-term debt
250000
260000
Net Fixed
Assets
420000
483000
Common Stock
300000
300000
Retained Earnings
45000
206342
Total Equity
345000
506342
Total Assets
710000
816500
Total Liabilities
and Equity
710000
816500
Change in net working capital = $108,342
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Quiz Notes
2
The IFRS encourages the use of market to market accounting rules
Holding more cash reserves will increase liquidity as well as foregone profits
The average tax rate and marginal tax rate are one and the same under which of the following taxation
policies? Flat
In Canada, dividends paid by companies to their shareholders are subject to both b & d (double taxation &
dividend tax credit)
In Canada, depreciation for tax purposes is called capital cost allowance
A firm just bought a piece of machinery for $735,000 which is projected to last for 7 years. This asset is subject
to a CCA rate of 30% and the half-year rule. What is the CCA on this asset in Year 3 of its life? $131,198
A CCA recapture occurs when an asset's selling price is greater than its ending UCC
The financial statement that summarizes a firm's sources and uses of cash over a specified period is called the
statement of cash flows
Given the following balance sheet, calculate the cash ratio.
Balance Sheet ending December 31, 2009
Cash
$100,000
Accounts Payable
$80,000
Accounts Receivable
75,000
Notes Payable
35,000
Inventory
115,000
Current Liabilities
115,000
Current Assets
290,000
Long-term debt
250,000
Net Fixed Assets
420,000
Common Stock
300,000
Retained Earnings
45,000
Total Equity
345,000
Total Assets
710,000
Total Liabilities and
Equity
710,000
Cash ratio = .87
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Quiz Notes
3
Given the following balance sheet, calculate the equity multiplier.
Balance Sheetending December 31, 2009
Cash
$100,000
Accounts Payable
$80,000
Accounts Receivable
75,000
Notes Payable
35,000
Inventory
115,000
Current Liabilities
115,000
Current Assets
290,000
Long-term debt
250,000
Net Fixed Assets
420,000
Common Stock
300,000
Retained Earnings
45,000
Total Equity
345,000
Total Assets
710,000
Total Liabilities and
Equity
710,000
Equity Multiplier = 2.06
Given the following information, calculate the days' sales in inventory.
Sales = $1,250,000
Cost of Goods Sold = $625,000
Inventory = $115,000
Accounts Receivable = $75,000
Accounts Payable = $80,000
Notes Payable = $35,000
Days’ Sales in inventory = 67.16
A firm has debt-equity ratio of 0.5, net income of $250,000, sales of $1,350,000, and total assets of $1,250,000.
What is its ROE? ROE = 30%
The first two dimensions of financial planning are planning horizon and aggregation
Financial planning can accomplish which of the following? D (link investment decisions with financing
options, explore different investment options and avoid undesirable surprises, ensure that financial
management goals are internally consistent and feasible)
In using the percentage of sales approach to financial planning, which of the following Balance Sheet items
is not normally assumed to increase proportionally with Sales? Short term notes payable
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Document Summary
The process of planning and managing a firm"s investment in long-term assets is called capital budgeting. A form of business organization that is set up to hold all the debt and equity of an underlying business and to distribute the income generated by that business to its owners is called an income trust. The primary goal of financial managers should be to maximize share price. Cost of goods sold = 60% of sales revenues. Given the following information, calculate the change in net working capital in 2010. Change in net working capital = ,342 and equity. The ifrs encourages the use of market to market accounting rules. Holding more cash reserves will increase liquidity as well as foregone profits. In canada, dividends paid by companies to their shareholders are subject to both b & d (double taxation & dividend tax credit) In canada, depreciation for tax purposes is called capital cost allowance.
