33:390:310 Lecture Notes - Lecture 3: Tax Rate, Cash Flow, Income Statement

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rubysalmon273

29 Sep 2017

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Book value is the price it was bought at and the market value: price its worth today. Cash flow does(cid:374)"t ha(cid:448)e depre(cid:272)iatio(cid:374) si(cid:374)(cid:272)e it"s a non-cash item. Marginal tax rate is the tax on the next item. Look at that equation table from the textbook. Interval measure (aka cash burn) = ca/ average daily operating costs. Ratio analysis: makes it easier to compare through time or between companies, used internally and externally. Categories of financial ratios: short term solvency or liquidity, long term solvency or financial leverage ratios, asset management or turnover ratios, profitability ratios, market value rations. Computing liquidity ratios: current ratio= ca/cl, quick ratio= (ca-inventory)/cl, cash ratio= cash/cl, nwc to total assets= nwc/ta. Long term solvency ratios: total debt ratio= (ta te)/ ta, debt/equity= td/te, equity multiplier= ta/te = 1+ d/e, long term debt ratio= ltd/(ltd+te) Computing coverage ratios: times interest earned= ebit/interest, cash coverage= (ebit + depreciation)/interest. Computing inventory ratios: day"s sale i(cid:374) i(cid:374)(cid:448)e(cid:374)tory= 3(cid:1010)(cid:1009)/i(cid:374)(cid:448)e(cid:374)tory tur(cid:374)o(cid:448)er.

Related Questions

The goal of the firm is to ____ because _____. Answer maximize shareholders' wealth; it considers all risks invest funds in real estate; the return is longer maximize shareholders' profit; it is a short term outlook closely matching management goals Mike is paying $8,000 a year on his mortgage at 6% nominal annual interest. He has 15 more years to make payments. He wants to sell his house today. The lowest [minimum] price he can sell the house without losing any money on the house would be about ___. Answer $120,000 $ 50,000 $77,698 $ 186,208 A firm's net income before tax, EBT [NIBT] (on the income statement) is affected by _____. Answer taxes interest dividends Common Stock as listed on the Balance Sheet could include which of the following? Answer A) retained earnings B) additional paid in capital over par value C) preferred capital Both A) and B) If an asset is sold for ___ than its basis, the tax effect would be ____. Answer A) more; capital gain and depreciation recapture B) less; depreciation recapture C) more; capital loss Both A) and B) The main reason for a firm to have assets is to _______. Answer generate revenue match the liabilities and equity both of the above be able to borrow money and pay its debts none of the above The only risk you would NOT have in loaning money to the United States Government (Uncle Sugar) is _____ risk. Answer liquidity maturity default A(n) ____ shows _____. Answer balance sheet; sources and uses of funds income statement; net income as of a specific date cash flow statement; how well the firm is doing relative to its competition You can compare dollars _____ because ______. Answer computed using equations; any math is always correct at any point in time; time is never a factor if they are at nominal value; that is when decisions are made only at the same point in time; dollars can be invested to earn interest There ___ a tax benefit to the company with paying preferred dividends because _______. Answer is; investors can write them off is not; investors declare them as income is; the company can use the payments as an expense is not; the company cannot use the payments as an expense XYZ issued a 6% coupon, $1,000 par, 30 year to maturity bond. It is now 6 years to maturity. What is the price of the bond if the yield to maturity [market interest rate] is 10%? Answer $1,000 $659.46 $825.79 $705.33 The valuation process can be described as ______. Answer calculating the present value of an expected future cash flow using the investor's required rate of return as the discount rate calculating the future value of an expected future cash flow using the investor's required rate of return as the discount rate amortizing the value of the asset over its holding period The ______ is the minimum required rate of return a firm must earn on its investments. Answer net present value opportunity cost of capital or weighted average cost of capital. internal rate of return gross profit margin The value of an asset is the _____ dollar price someone is willing to pay for it. Answer usual maximum minimum Companies use ____ in capital budgeting project analysis because ________. Answer accounting profit; that is the total net income after tax cash flow; that is what the owners would receive from the project and reinvest accounting profit; that is what the owners would receive from the project and reinvest after tax cash flow; that is the result of prudent accounting When borrowing money, you want to know the ____ interest rate because ____. Answer nominal; it is the easiest to find. effective; it is the true cost of borrowing risk free; that is what the government pays Fed funds; that is what you would pay the bank Cash available to pay out to the investors after the firm pays for new investments or additions to working capital is _____. Answer a statement of cash flows operating after tax cash flow free cash flow net income An organization that raises money from investors and provides financing for individuals and businesses is a ___. Answer factor federal government regulatory unit state government taxing authority financial intermediary Negatives/cons of the Net Present Value (NPV) technique include: Answer least conservative reinvestment assumption multiple rates of return for non-conventional cash flows all of the above none of the above A fixed exchange rate means a country _____. Answer can only use gold coins as money is limited in the amount of paper money it can print can print money as the economy demands Your company is considering an investment with the following expected cash flows: Initial Investment = $407,596 Operating Cash Flows = $73,428 per year Terminal Cash Flow = $11,872. The company's WACC is 11% for similar risk projects. The proposed project would have an expected life of 9 years. Your boss asks you to do the analysis. You would tell your boss this proposed project ___ because ____. Answer is acceptable; NPV is about $3,620 is acceptable; NPV is zero should be rejected; NPV is about -$5,660 [negative $5,660]. should be rejected; NPV is zero All ratios are ___ and a reason to analyze ratios is ____. Answer good; to continue to look productive good and bad; because seemingly good ratios can be masking something bad bad; to try to rework the numbers to have them look good basically irrelevant; there really is no need to analyze financial statements When analyzing financial statements, ratio analysis gives ____ and provides insight into ____. Answer very little useful information; practically nothing good practice in logical thinking; what has occurred and the logic behind it financiers something to do during slow periods; how the financier spends his time accountants a reason to provide financial statements; why accountants do what they do while at work Given: Economic State[i]: Good Average Expected Return[i]: 10% 8% Probability[i]: 30% 70% What is the Standard Deviation? Answer 3% 8.4% 0.92% 5.6% Chapter 9: XYZ has a projected project to install a new press. The expected cash revenue is $175,000 per year. Expected yearly expenses are: Operatinf costs of $50,000; Rental of $17,000; Utilities of $20,500; and Depreciation of $10,000. The tax rate is 35%. What is the expected After-Tax Operating Cash Flow for the first year? Answer $65,500 $60,375 $77,500 $97,500 A stock just paid a dividend of $1.60 per year. The dividend is expected to grow at 3% per year indefinately. Equally risky stocks offer expected rates of return of 8%. What should be the stock price? Answer 53.33 $16.00 $32.96 None of the above. A plot of the CAPM is the _____. Answer wrong thing to do Security Market Line a function showing how to calculate TVM All of the above. Derivatives are used to ___. Answer divide one number by another find old ways to do things hedge risk none of the above With the end of the Gold Standard in the 1970's, what new risk did business face in the international market? Answer Comjpetition Exchange rate Worker compensation Property taxes One of the positive aspects [pros] of a Floating Exchange Rate System is ____. Answer money can be printed as needed to support financial/economic growth no/reduced inflation economic growth is reduced as a result of reduced liquidity [lower money supply] business planning is more difficult A(n) ____ contract obligates the seller to execute the contract and the contract is executed. Answer backwards forward future option What policies did countries institute after the Great War that help lead to the Great Depression? Answer A. Mandatory military service B. Trade restrictions C. High tariffs D. Isolationism Only B., C. and D. All of the above

bluemarten153

Issuance of a Bond at Face Value

On January 1, 2014, Whitefeather Industries issued 1,600 $1,000 face value bonds. The bonds have a(n) five-year life and pay interest at the rate of 8%. Interest is paid semiannually on July 1 and January 1. The market rate of interest on January 1 was 8%. Use the present value tables that may be found by clicking on the Present Value button.

Required:

1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1, 2014.

Round your answer to the nearest $1,000. For example, $296,987 would be entered as $297,000.
$

Identify and analyze the effect of the issuance of the bonds on January 1, 2014.

Activity	- Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 2
Accounts	- Select your answer -Cash Increase, Bonds Payable IncreaseCash Increase, Bonds Payable DecreaseCash Decrease, Bonds Payable IncreaseCash Decrease, Bonds Payable DecreaseCorrect 2 of Item 2
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 2

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Assets

Liabilities

Stockholders' Equity

Revenues

â

Expenses

Net Income

- Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 1 of Item 3

- Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 3 of Item 3

- Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 6 of Item 3

- Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 8 of Item 3

2. How would the issue price have been affected if the market rate of interest had been higher than 8%.
- Select your answer -Bonds would be issued at a discount.Bonds would be issued at a premium.Bonds would be issued at face value.Indeterminable without more information.Correct 1 of Item 4

3. Identify and analyze the effect of the payment of interest on July 1, 2014.

Activity	- Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 5
Accounts	- Select your answer -Cash Increase, Interest Expense IncreaseCash Increase, Interest Expense DecreaseCash Decrease, Interest Expense IncreaseCash Decrease, Interest Expense DecreaseCorrect 2 of Item 5
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5

Balance Sheet

Income Statement

Assets

Liabilities

Stockholders' Equity

Revenues

â

Expenses

Net Income

- Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 1 of Item 6

- Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 3 of Item 6

- Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 6 of Item 6

- Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 8 of Item 6

4. Calculate the amount of interest accrued on December 31, 2014. If required, round your answer to the nearest dollar.
$

limemouse936

1. Which of the following would result in a decrease in cash flow and a use of cash? A. A decrease in notes payable B. An increase in long-term debt C. A decrease in inventory D. A decrease in common stock

2. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded an average rate of A. 15%. C. 39%. B. 35%. D. 34%.

3. A firm has assets of $60,000 and ownersâ equity of $33,000. Which of the following is the correct balance of the firmâs liabilities? A. $33,000 C. $93,000 B. $27,000 D. $60,000

4. Which of the following would result in an increase in cash flow and a source of cash? A. A decrease in notes payable B. A decrease in long-term debt C. An increase in inventory D. An increase in common stock

5. A firm has current assets of $10,000 and current liabilities of $7,000. Which of the following is the correct net working capital for the firm? A. $10,000 C. $3,000 B. $7,000 D. $13,000

6. If a firm has an accounts receivable balance of $18,800 at the end of 2007 and $16,500 at the end of 2008, which of the following statements about accounts receivable is correct? A. Accounts receivable decreased by $2,300 and represented a use of cash. B. Accounts receivable increased by $2,300 and represented a source of cash. C. Accounts receivable decreased by $2,300 and represented a source of cash. D. Accounts receivable increased by $2,300 and represented a use of cash.

7. If a firm has revenues of $15,090 and expenses of $8,850, what is the firmâs taxable income? A. $15,090 C. $6,240 B. $8,850 D. $23,940

8. Which of the following statements about the issuance of an initial public offering (IPO) is correct? A. IPOs may be either underpriced or overpriced. B. IPOs are never overpriced. C. IPOs are never underpriced. D. IPOs are always correctly priced.

9. If a firm has revenues of $15,090, operating expenses of $8,850, and a tax expense of $2,120, what is the firmâs net income? A. $8,850 C. $6,240 B. $4,120 D. $8,360

10. When youâre preparing a common-sized balance sheet, which of the following measures is set to equal 100 percent? A. Total liabilities C. Total ownersâ equity B. Total assets D. Cash Examination, Lesson 1 35

11. Suppose that a corporation has a taxable income of $200,000. What is the firmâs corporate income tax for the current tax year? (You can use the following table to calculate the firmâs U.S. federal corporate tax.) Taxable Income More Than Taxable Income Less Than Tax Rate $0 $50,000 15% $50,001 $75,000 25% $75,001 $100,000 34% $100,001 $335,000 39% $335,001 $10,000,000 34% $10,000,001 $15,000,000 35% $15,000,001 $183,333,334 38% $18,333,334 35% A. $78,000 C. $39,000 B. $6,250 D. $61,250

12. Using the same table and information provided in Question 11, what is the firmâs average tax rate? A. 39% C. 34% B. 30.625% D. 31.625%

13. Using the same table and information provided in Question 11, what is the firmâs marginal tax rate? A. 39% C. 34% B. 30.625% D. 31.625%

14. Dilution refers to the loss of shareholder value, and may be represented by all of the following except dilution of A. ownership percentage. B. market value. C. the firmâs current ratio. D. book value per share.

15. If a firm has $6,940 in earnings before interest and taxes, $650 in depreciation expense, and $2,120 in taxes, what is the firmâs operating cash flow? A. $4,120 C. $6,240 B. $5,470 D. $9,710

16. The type of financial statement that summarizes the sources and uses of cash over a specified period of time is called the A. statement of cash flows. B. income statement. C. balance sheet. D. inventory ratio statement.

17. The current ratio falls within which of the following classifications of financial ratios? A. Long-term solvency measures B. Asset management or turnover measures C. Short-term solvency or liquidity measures D. Profitability measures

18. If a firm has an accounts payable balance of $34,400 at the end of 2007 and $31,200 at the end of 2008, which of the following statements about accounts payable is correct? A. Accounts payable decreased by $3,200 and represented a use of cash B. Accounts payable increased by $3,200 and represented a source of cash C. Accounts payable decreased by $3,200 and represented a source of cash D. Accounts payable increased by $3,200 and represented a use of cash

19. Which of the following is not one of the six costs of issuing securities? A. Rights offering C. Green Shoe option B. Abnormal returns D. Gross spread 20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of A. 15%. C. 39%. B. 35%. D. 34%.

20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of A. 15%. C. 39%. B. 35%. D. 34%.

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33:390:310 Lecture Notes - Lecture 3: Tax Rate, Cash Flow, Income Statement

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