Question 1 The relationship that exists on a balance sheet is: Assets = Liabilit

Question

Question 1

The relationship that exists on a balance sheet is:

Assets = Liabilities – Equity.

None of the above

Assets = Liabilities + Equity.

Liabilities = Assets + Equity.

If a company generates positive net income, all else equal, cash will

Uncertain – Insufficient information

Increase

Stay the same

Decrease

Question 3

If a “typical” firm reports a $20 Million dollars of retained earnings on its balance sheet, could its directors declare a $20 million dollar cash dividend without any qualms whatsoever?

Yes, retained earnings represents the amount of equity built up in the company.

Yes, retained earnings represents the amount of cash on hand.

No, retained earnings is a liability and therefore can not be used to pay dividends.

No, retained earnings, though an equity account does not reflect the firms ability to pay out cash in the form of dividends.

Question 4

A Major Corporation recently announced that its net income was lower than last year, however, analysts estimate that the company’s net cash flow increased. What factors could explain this discrepancy?

The company’s interest expense declined

The company’s depreciation expense increased

None of the answers listed is correct

The company had an increase in its non-cash revenues.

Question 5

The primary goal of a publicly owned firm interested in serving the interests of stockholders should be to:

Maximize market power

Maximize total corporate net income

Maximize shareholder value

Minimize expenses

Question 6

What is the future value of $100 invested for 32 years at 12 percent interest?

Question 7

Assume a firms net income is equal to $600,000. If all revenue and operating expenses were paid in cash what would be the firms operating cash flow for the year if the firm paid a dividend of $200,000 and depreciation of $166,894?

Question 8

If a company purchases $1 million of its own common, all else equal, cash will

Increase then decrease

Stay the same

Increase

Decrease

Question 9

Assume that you face the marginal tax rate schedule below and your income is $103,718. What is your total tax?

Income Marginal Tax rate

Up to $15,600       10%
$15,600-63,000     15%
$63,000-128,500   25%
Over   $128,500     33%

Question 10

A major corporation has revenue of $1,500,000, operating expenses excluding depreciation of $500,000 and paid a $200,000 as a dividend. The company’s depreciation is $100,000. The corporation is 100% equity financed, and it faces a 34% tax rate. What is the company’s net income?

Assets = Liabilities – Equity.

None of the above

Assets = Liabilities + Equity.

Liabilities = Assets + Equity.

Explanation / Answer

1. The relationship that exists on a balance sheet is: Assets = Liabilities + Equity (Option C)

2. If a company generates positive net income, all else equal, cash will INCREASE (Option B)

3. No, retained earnings, though an equity account does not reflect the firms ability to pay out cash in the form of dividends. (Option D)

4.The company’s depreciation expense increased (Option B)

5. Maximize shareholder value (option C)

6. FV = 100*1.12^32 =3,758.17

7. Operating cash flow = 600,000-200,000+166,894 = 566,894

8. Decrease (Option D)

9. Total tax = 0.10*15,600+0.15*(63,000-15,600) +0.25*(103,718-63,000) = 18,849.50

10. Net Income = (1,500,000- 500,000 -100,000)*(1-0.34) = $594,000

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