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Exam 3: Financial Statements, cash Flow, and Taxes

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Question 51

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C.F.Lee Inc.has the following income statement.How much after-tax operating income does the firm have?

A) $427.78
B) $450.29
C) $473.99
D) $498.94
E) $525.20

F) A) and C)
G) A) and E)

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Question 52

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Shrives Publishing recently reported $10,750 of sales,$5,500 of operating costs other than depreciation,and $1,250 of depreciation.The company had $3,500 of bonds that carry a 6.25% interest rate,and its federal-plus-state income tax rate was 35%.During the year,the firm had expenditures on fixed assets and net operating working capital that totaled $1,550.These expenditures were necessary for it to sustain operations and generate future sales and cash flows.What was its free cash flow?

A) $1,873
B) $1,972
C) $2,076
D) $2,185
E) $2,300

F) C) and E)
G) D) and E)

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Question 53

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Your corporation has a marginal tax rate of 35% and has purchased preferred stock in another company.The before-tax dividend yield on the preferred stock is 12%.What is the company's after-tax return on the preferred,assuming a 70% dividend exclusion?

If a firm is reporting its income in accordance with generally accepted accounting principles,then its net income as reported on the income statement should be equal to its free cash flow.

Which of the following statements is CORRECT?

Scranton Shipyards has $20 million in total invested operating capital,and its WACC is 10%.Scranton has the following income statement: What is Scranton's EVA?

The next-to-last line on the income statement shows the firm's earnings,while the last line shows the dividends the company paid.Therefore,the dividends are frequently called "the bottom line."

During 2014,Bascom Bakery paid out $33,525 of common dividends.It ended the year with $197,500 of retained earnings versus the prior year's retained earnings of $159,600.How much net income did the firm earn during the year?

On the balance sheet,total assets must always equal the sum of total liabilities and equity.

In finance,we are generally more interested in cash flows than in accounting profits.Free cash flow (FCF)is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital.

A 7-year municipal bond yields 4.8%.Your marginal tax rate (including state and federal taxes) is 27%.What interest rate on a 7-year corporate bond of equal risk would provide you with the same after-tax return?

Which of the following factors could explain why Michigan Energy's cash balance increased even though it had a negative cash flow last year?

The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends,and the riskiness of those cash flows.

A bond issued by the State of Pennsylvania provides a 9% yield.What yield on a Synthetic Chemical Company bond would cause the two bonds to provide the same after-tax rate of return to an investor in the 35% tax bracket?

The alternative minimum tax (AMT)was created by Congress to make it more difficult for wealthy individuals to avoid paying taxes through the use of various deductions.

Analysts who follow Howe Industries recently noted that,relative to the previous year,the company's net cash provided from operations increased,yet cash as reported on the balance sheet decreased.Which of the following factors could explain this situation?

Which of the following statements is CORRECT?

A loss incurred by a corporation

A corporate bond currently yields 8.5%.Municipal bonds with the same risk,maturity,and liquidity currently yield 5.5%.At what tax rate would investors be indifferent between the two bonds?

On 12/31/14,Hite Industries reported retained earnings of $525,000 on its balance sheet,and it reported that it had $135,000 of net income during the year.On its previous balance sheet,at 12/31/13,the company had reported $445,000 of retained earnings.No shares were repurchased during 2014.How much in dividends did the firm pay during 2014?