Q&A Hero

Q: Cash paid to purchase long-term investments would be reported on the statement of cash flows in a. the Cash Flows from (used for) Operating Activities section b. the Cash Flows from (used for) Financing Activities section c. the Cash Flows from (used for) Investing Activities section d. a separate section of noncash investing and financing activities

Q: You are comparing two annuities with equal present values. The applicable discount rate is 6.5 percent. One annuity will pay $2,000 annually, starting today, for 20 years. The second annuity will pay annually, starting one year from today, for 20 years. What is the annual payment for the second annuity? A. $2,225 B. $2,075 C. $2,000 D. $2,130 E. $2,405

Q: On the statement of cash flows, the financing activities section would include all of the following except a. cash received from the sale of bonds payable b. cash paid for dividends c. cash paid for the purchase of treasury stock d. cash paid for the interest on bonds payable

Q: Denise will receive annual payments of $10,000 for the next 25 years. The discount rate is 6.8 percent. What is the difference in the present value of these payments if they are paid at the beginning of each year rather than at the end of each year? A. $8,069 B. $9,217 C. $9,706 D. $8,382 E. $8,850

Q: On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be a. deducted from net income in converting the net income reported on the income statement to net cash flows from operating activities b. added to net income in converting the net income reported on the income statement to net cash flows from operating activities c. added to dividends declared in converting the dividends declared to the net cash flows from financing activities related to dividends d. deducted from dividends declared in converting the dividends declared to the net cash flows from financing activities related to dividends

Q: Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first annuity payment made on the date of purchase. What is the value of the annuity on the purchase date given a discount rate of 7 percent? A. $54,282.98 B. $52,970.07 C. $56,677.98 D. $56,191.91 E. $66,916.21

Q: You need some money today and the only friend you have that has any is your "miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5% interest per month. How much total interest does he expect to earn? A. $3.94 B. $4.35 C. $1.34 D. $3.63 E. $5.96

Q: Cash paid for equipment would be reported on the statement of cash flows in a. the Cash Flows from (used for) Operating Activities section b. the Cash Flows from (used for) Financing Activities section c. the Cash Flows from (used for) Investing Activities section d. a separate section of noncash investing and financing activities

Q: Rogers Company reported net income of $35,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000, and depreciation expense of $8,000 was recorded. Net cash flows from operating activities under the indirect method for the year is a. $53,000 b. $47,000 c. $33,000 d. $37,000

Q: Uptown Industries just decided to save $3,000 a quarter for the next three years. The money will earn 2.75 percent, compounded quarterly, and the first deposit will be made today. If the company had wanted to deposit one lump sum today, rather than make quarterly deposits, how much would it have had to deposit today to have the same amount saved at the end of the three years? A. $34,441.56 B. $34,678.35 C. $33,428.87 D. $33,687.23 E. $34,998.01

Q: Wilt has a consulting contract with a firm that states that he will receive annual payments of $50,000 a year for five years with the first payment due today. What is the current value of this contract if the discount rate is 8.4 percent? A. $214,142.50 B. $201,867.47 C. $195,618.19 D. $197,548.43 E. $224,267.10

Q: A building with a book value of $54,000 is sold for $63,000 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as an increase of a. $54,000 from investing activities b. $63,000 from investing activities and a deduction from net income of $9,000 c. $9,000 from investing activities d. $54,000 from investing activities and an addition to net income of $9,000

Q: Your employer contributes $50 a week to your retirement plan. Assume you work for your employer for another twenty years and the applicable discount rate is 5 percent, compounded weekly. Given these assumptions, what is this employee benefit worth to you today? A. $29,144.43 B. $35,920.55 C. $32,861.08 D. $26,446.34 E. $36,519.02

Q: Which of the following is a noncash investing and financing activity? a. payment of a cash dividend b. payment of a 6-month note payable c. purchase of merchandise inventory on account d. issuance of common stock to acquire land

Q: Olivia is willing to pay $185 a month for four years for a car payment. If the interest rate is 4.9 percent, compounded monthly, and she has a cash down payment of $2,500, what price car can she afford to purchase? A. $10,961.36 B. $10,549.07 C. $8,533.84 D. $8,686.82 E. $8,342.05

Q: The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash paid for merchandise during the year is a. $46,000 b. $44,000 c. $50,000 d. $40,000

Q: You just won the lottery! As your prize you will receive $1,500 a month for 150 months. If you can earn 7 percent, compounded monthly, on your money, what is this prize worth to you today? A. $137,003.69 B. $149,676.91 C. $137,962.77 D. $148,104.26 E. $150,723.76

Q: Which of the following would not be found in a schedule of noncash investing and financing activities reported at the bottom of a statement of cash flows? a. equipment acquired in exchange for a note payable b. bonds payable exchanged for capital stock c. purchase of treasury stock for cash d. capital stock issued to acquire fixed assets

Q: Your parents plan to give you $200 a month for four years while you are in college. At a discount rate of 6 percent, compounded monthly, what are these payments worth to you when you first start college? A. $8,797.40 B. $8,409.56 C. $8,198.79 D. $8,516.06 E. $8,279.32

Q: Which of the following should be deducted from net income in computing net cash flows from operating activities using the indirect method? a. a decrease in inventory b. a decrease in accounts payable c. preferred dividends declared and paid d. a decrease in accounts receivable

Q: On the statement of cash flows, the investing activities section would include a. cash received from the issuance of capital stock b. cash paid for dividends c. cash paid for retirement of bonds payable d. cash received from the sale of investments

Q: Shawn has $2,500 invested at a guaranteed rate of 4.35 percent, compounded annually. What will his investment be worth after five years? A. $2,997.04 B. $3,288.00 C. $3,321.32 D. $3,093.16 E. $2,857.59

Q: You plan to invest $6,500 for three years at 4 percent simple interest. What will your investment be worth at the end of the three years? A. $6,941.11 A. ANSB. $7,280.00 B. $7,311.62 C. $7,250.00 D. $6,760.00

Q: Accounts receivable from sales transactions were $51,000 at the beginning of the year and $64,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method would be a. $105,000 b. $118,000 c. $92,000 d. $169,000

Q: What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent? A. $6,395.31 B. $6,023.58 C. $6,643.29 D. $6,671.13 E. $7,253.72

Q: Changes in current assets and current liabilities are reported on the statement of cash flows, using the indirect method, in the a. operating activities section b. financing activities section c. investing activities section d. separate section of noncash investing and financing activities

Q: In computing net cash flows from operating activities using the indirect method, a gain on the sale of equipment is a. added to net income b. deducted from net income c. ignored because it does not affect cash d. reported supplementally as a noncash investing and financing activity

Q: The net present value of a project is equal to the: A. present value of the future cash flows. B. present value of the future cash flows minus the initial cost. C. future value of the future cash flows minus the initial cost. D. future value of the future cash flows minus the present value of the initial cost. E. sum of the project's anticipated cash flows.

Q: Cash dividends paid on common stock would be reported on the statement of cash flows in a. the Cash Flows from (used for) Financing Activities section b. the Cash Flows from (used for) Investing Activities section c. a separate section of noncash investing and financing activities d. the Cash Flows from (used for) Operating Activities section

Q: Given a stated interest rate, which form of compounding will yield the highest effective rate of interest? A. annual compounding B. monthly compounding C. daily compounding D. continuous compounding E. semiannual compounding

Q: Equipment with an original cost of $75,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would a. increase by $48,000 b. decrease by $7,000 c. increase by $55,000 d. decrease by $27,000

Q: The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:A. [1 + (.09 / 365)] 365.B. e.09 q.C. e (1 + .09).D. e.09 −1.E. [1 + (.09 / 365)]365 −1.

Q: You would be making a wise decision if you chose to: A. base decisions regarding investments on effective rates and base decisions regarding loans on annual percentage rates. B. assume all loans and investments are based on simple interest. C. accept the loan with the lower effective annual rate rather than the loan with the lower annual percentage rate. D. invest in an account paying 6 percent, compounded quarterly, rather than an account paying 6 percent, compounded monthly. E. ignore the effective rates and concentrate on the annual percentage rates for all transactions.

Q: A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under a. investing activities b. financing activities c. noncash investing and financing activities d. operating activities

Q: The annual percentage rate: A. considers interest on interest. B. is the actual cost of a loan with monthly payments. C. is higher than the effective annual rate when interest is compounded quarterly. D. is the interest rate charged per period divided by (1 + n), when n is the number of periods per year. E. equals the effective annual rate when the interest on an account is designated as simple interest.

Q: Free cash flow is a. all cash in the bank b. cash from operations c. the net cash flows from financing activities less the cash used to purchase fixed assets and pay dividends d. the net cash flows from operating activities less the cash used to purchase the fixed assets necessary to maintain current operations

Q: A perpetuity differs from an annuity because:A. perpetuity payments vary with the rate of inflation.B. perpetuity payments vary with the market rate of interest.C. perpetuity payments are variable while annuity payments are constant.D. perpetuity payments never cease.E. annuity payments occur at irregular intervals of time.

Q: Which of the following should be shown on a statement of cash flows under the financing activities section? a. the purchase of a long-term investment in the common stock of another company b. the payment of cash to retire a long-term note c. the proceeds from the sale of a building d. the issuance of a long-term note to acquire land

Q: A company had net income of $252,000. Depreciation expense was $26,000. During the year, accounts receivable and merchandise inventory increased by $15,000 and $40,000, respectively. Prepaid expenses and accounts payable decreased by $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. How much was the net cash flows from operating activities on the statement of cash flows using the indirect method? a. $217,000 b. $224,000 c. $284,000 d. $305,000

Q: You are considering two projects with the following cash flows: Assuming both projects have the same initial cost, you know that: A. there are no conditions under which the projects can have equal values. B. Project B has a higher net present value than Project A. C. Project A is more valuable than Project B given a positive discount rate. D. both projects offer the same rate of return. E. both projects have equal net present values at any discount rate.

Q: Which of the following would not be classified as an operating activity? a. interest expense b. income taxes c. payment of dividends d. selling expenses

Q: You are comparing two investment options, each of which will provide $15,000 of total income. Option A pays five annual payments starting with $5,000 the first year followed by four annual payments of $2,500 each. Option B pays five annual payments of $3,000 each. Which one of the following statements is correct given these two investment options? A. Both options are of equal value today. B. Given a positive rate of return, Option A is worth more today than Option B. C. Option B has a higher present value than Option A given a positive rate of return. D. Option B has a lower present value than Option A given a zero rate of return. E. Option A is preferable because it is an annuity due.

Q: The operating cash flow available for a company to use after purchasing the fixed assets that are necessary to maintain current productive capacity is called the a. free cash flow b. modified cash flow c. PPE cash flow d. restricted cash flow

Q: Ted purchased an annuity today that will pay $1,000 a month for five years. He received his first monthly payment today. Allison purchased an annuity today that will pay $1,000 a month for five years. She will receive her first payment one month from today. Which one of the following statements is correct concerning these two annuities? A. Both annuities are of equal value today. B. Allison's annuity is an annuity due. C. Ted's annuity has a higher present value than Allison's. D. Allison's annuity has a higher present value than Ted's. E. Ted's annuity is an ordinary annuity.

Q: Binder and Sons borrowed $138,000 for three years from their local bank and now they are paying monthly payments that include both principal and interest. Paying off debt by making installments payments, such as Binder and Sons is doing, is referred to as: A. foreclosing on the debt. B. amortizing the debt. C. funding the debt. D. calling the debt. E. refunding the debt.

Q: The interest rate charged per period multiplied by the number of periods per year is called the _____ rate. A. effective annual B. annual percentage C. periodic interest D. compound interest E. daily interest

Q: Which of the following is not one of the four basic financial statements? a. balance sheet b. statement of cash flows c. statement of changes in financial position d. income statement

Q: An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the _____ rate. A. stated interest B. compound interest C. effective annual D. periodic interest E. daily interest

Q: Which of the following does not represent an outflow of cash and therefore would not be reported on the statement of cash flows as a use of cash? a. purchase of noncurrent assets b. purchase of treasury stock c. discarding an asset that had been fully depreciated d. payment of cash dividends

Q: Cash flow per share is a. required to be reported on the balance sheet b. required to be reported on the income statement c. required to be reported on the statement of cash flows d. not required to be reported on any statement

Q: A flow of unending and equal payments that occur at regular intervals of time is called a(n): A. annuity due. B. indemnity. C. perpetuity. D. amortized cash flow stream. E. amortization table.

Q: Use the information provided for Washington Company to answer the questions that follow.The following selected account balances appear on the financial statements of Washington Company:Accounts Receivable, January 1 $13,000Accounts Receivable, December 31 9,000Accounts Payable, January 1 4,000Accounts Payable, December 31 7,000Merchandise Inventory, January 1 10,000Merchandise Inventory, December 31 15,000Sales 56,000Cost of Merchandise Sold 31,000Washington Company uses the direct method to determine net cash flows from operating activities.Cash paid for merchandise during the year is a. $39,000 b. $33,000 c. $29,000 d. $23,000

Q: Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period. A. ordinary annuities; early annuities B. late annuities; straight annuities C. straight annuities; late annuities D. annuities due; ordinary annuities E. ordinary annuities; annuities due

Q: If a gain of $11,000 is realized in selling (for cash) office equipment having a book value of $55,000, the total amount reported in the investing activities section of the statement of cash flows is a. $44,000 b. $11,000 c. $55,000 d. $66,000

Q: An annuity stream of cash flow payments is a set of: A. equal cash flows occurring each time period over a fixed length of time. B. equal cash flows occurring each time period forever. C. either equal or varying cash flows occurring at set intervals of time for a fixed period. D. increasing cash flows occurring at set intervals of time that go on forever. E. arbitrary cash flows occurring each time period for no more than 10 years.

Q: You are comparing the common-size financial statements for two firms in the same industry that have very similar operations. You note that their sales revenues are similar in dollar value but yet the common-size EBIT for one firm is 30 percent compared to only 26 percent for the other firm. What are some possible explanations for this difference given the strong similarities of the two firms?

Q: The following information is available from the current period financial statements: Net income $165,000Depreciation expense 28,000Increase in accounts receivable 16,000Decrease in accounts payable 21,000 The net cash flows from operating activities using the indirect method is a. $230,000 b. $188,000 c. $198,000 d. $156,000

Q: Which is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?

Q: Which of the following increases cash? a. depreciation expense b. acquisition of treasury stock c. borrowing money by issuing a 6-month note d. the declaration of a cash dividend

Q: A retail store has days' sales in inventory of 68 days and an average collection period of 32 days. The firm pays its suppliers in an average of 42 days, on average. Taken together, what do these average values imply about the firm's operations and its cash flows?

Q: The current period statement of cash flows includes the following: Cash balance at the beginning of the period $310,000 Net cash flows from operating activities 185,000 Net cash flows used for investing activities (43,000)Net cash flows used for financing activities (97,000) The cash balance at the end of the period is a. $45,000 b. $635,000 c. $355,000 d. $125,000

Q: Suppose a firm calculates its external financial need for a growth rate of 10 percent and finds that the need is a negative value. What are the firm's options in this case?

Q: State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.The usual assumptions are: Costs, assets, and current accounts (excluding notes payable) increase proportionately with sales, the dividend payout ratio is fixed (or is given), the current debt-equity ratio is optimal and fixed, and no new equity sales will occur. The sustainable growth rate is the maximum rate at which sales can increase given the stated assumptions while maintaining the funding required by that growth.

Q: The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports a. the net increase or decrease in cash b. cash at the end of the period c. net cash flows from investing activities d. net cash flows from financing activities

Q: Sales for the year were $600,000. Accounts receivable were $100,000 and $80,000 at the beginning and end of the year, respectively. Cash received from customers to be reported on the statement of cash flows using the direct method is a. $700,000 b. $600,000 c. $580,000 d. $620,000

Q: New Tek has a sustainable growth rate of 11.2 percent. However, the firm's managers are determined that the firm should grow by at least 20 percent next year. What must the firm do if the managers are to reach their desired level of growth for the firm?

Q: Zenith Corporation sells some of its used store fixtures for $5,300. The acquisition cost of the fixtures is $12,500, and the accumulated depreciation on these fixtures is $9,750. The value of this transaction appearing in the investing section of the statement of cash flows is a. $12,500 b. $5,300 c. $2,750 d. $2,550

Q: Assume that all costs, assets, and accounts payable change spontaneously with sales. For simplicity's sake, assume interest expense also changes spontaneously with sales (even though you know if may not). The tax rate and dividend payout ratios remain constant. If the firm's managers project a firm growth rate of 16 percent for next year, what will be the amount of external financing needed to support this level of growth? ANS$$ANSA. $22,444A. $18,700B. $24,350C. $23,911D. $25,667

Q: The following information is available from the current period financial statements:Net income $175,000 Depreciation expense 28,000 Increase in accounts receivable 16,000 Decrease in accounts payable (21,000)The net cash flows from operating activities using the indirect method is a. $166,000 b. $184,000 c. $110,000 d. $240,000

Q: Assume that all costs, assets, and accounts payable change spontaneously with sales. For simplicity's sake, assume interest expense also changes spontaneously with sales (even though you know if may not). The tax rate and dividend payout ratios remain constant. If the firm's managers project a firm growth rate of 22 percent for next year, what will be the amount of external financing needed to support this level of growth?A. $63,200B. $66,270C. $47,520D. $63,200E. $53,640F. $47,520G. $56,400H. $53,640I. $56,400

Q: Assume that all costs, assets, and accounts payable change spontaneously with sales. For simplicity's sake, assume interest expense also changes spontaneously with sales (even though you know if may not). The tax rate and dividend payout ratios remain constant. If the firm's managers project a firm growth rate of 15 percent for next year, what will be the amount of external financing needed to support this level of growth?A. $49,535B. $68,211C. −$10,406D. $13,909E. $32,408

Q: Financing activities include a. lending money b. acquiring investments c. issuing debt d. acquiring long-lived assets

Q: Catherine's Consulting has net income of $4,400 and total equity of $39,450. The debt-equity ratio is 1 and the plowback ratio is 40 percent. What is the return on assets?A. 6.24%B. 6.09%C. 5.23%D. 5.58%E. 5.72%

Q: The Blue Giant has a profit margin of 6.2 percent and a dividend payout ratio of 40 percent. The capital intensity is 1.08 and the debt-equity ratio is .54. What is the sustainable rate of growth?A. 6.30%B. 5.53%C. 5.60%D. 6.41%E. 5.89%

Q: Norris Company declared cash dividends of $60,000 during the year. Cash dividends payable were $20,000 at the beginning of the year and $25,000 at the end of the year. The amount of cash paid for dividends during the year is a. $55,000 b. $80,000 c. $105,000 d. $65,000

Q: What are the values for the three components of the DuPont identity for 2015?A. 11.08%; .9289; 1.8679B. 11.08%; 1.0765; 1.8679C. 11.08%; .9289; .5354D. 7.75%; 1.0765; .5354E. 7.75%; 1.0765; 1.8679

Q: What is the equity multiplier for 2015?A. 1.71B. 1.87C. 1.44D. 1.82E. 1.92

Q: A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be reported on the statement of cash flows in a. a separate section of noncash investing and financing activities at the bottom of the statement b. the Cash Flows from (used for) Financing Activities section c. the Cash Flows from (used for) Investing Activities section d. the Cash Flows from (used for) Operating Activities section

Q: What is the sustainable growth rate for 2015?A. 13.97%B. 14.46%C. 15.54%D. 12.63%E. 10.91%

Q: What is the internal growth rate for 2015?A. 5.83%B. 6.24%C. 6.15%D. 5.18%E. 7.70%