Test Bank - Finance - Fundamentals of Financial Management, 15E by Eugene F. Brigham Joel F. Houston|Elaborated and Latest| 100% Covered.Test Bank - Finance - Fundamentals of Financial Management, 15E... by Eugene F. Brigham Joel F. Houston|Elaborated and Latest| 100% Covered.76. Which of the following statements is CORRECT? a. The current cash flow from existing assets is highly relevant to investors. However, since the value of the firm depends primarily upon its growth opportunities, accounting net income projections from those opportunities are the only relevant future flows with which investors are concerned. b. Two metrics that are used to measure a company's financial performance are net income and free cash flow. Accountants tend to emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on free cash flows as they do on net income. c. To estimate the net cash provided by operations, depreciation must be subtracted from net income because it is a non-cash charge that has been added to revenue. d. Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to discourage the use of debt financing by corporations. e. If Congress changed depreciation allowances so that companies had to report higher depreciation levels for tax purposes in 2012, this would lower their free cash flows for 2012. Multiple Choice: Problems A good bit of relatively simple arithmetic is involved in some of these problems, and although the calculations are simple, it will take students some time to set up the problem and do the arithmetic. We allow for this when assigning problems for a timed test. Also, students must use a number of definitions to answer some of the questions. To avoid excessive memorization, we provide students with a list of formulas and definitions for use on exams. Problems with * in the topic line are nonalgorithmic. (3-2) Balance sheet C K M Answer: a EASY 77. Bauer Software's current balance sheet shows total common equity of $5,125,000. The company has 530,000 shares of stock outstanding, and they sell at a price of $27.50 per share. By how much do the firm's market and book values per share differ? a. $17.83 b. $18.72 c. $19.66 d. $20.64 e. $21.67 (3-2) Balance sheet C K M Answer: b EASY 78. Brown Fashions Inc.'s December 31, 2012 balance sheet showed total common equity of $4,050,000 and 200,000 shares of stock outstanding. During 2012, the firm had $450,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/12, assuming no common stock was either issued or retired during 2012? a. $20.90 b. $22.00 c. $23.10 d. $24.26 (3-2) e. $25.47 Net oper. working capital C K M Answer: b EASY 79. Prezas Company's balance sheet showed total current assets of $4,250, all of which were required in operations. Its current liabilities consisted of $975 of accounts payable, $600 of 6% short-term notes payable to the bank, and $250 of accrued wages and taxes. What was its net operating working capital? a. $2,874 b. $3,025 c. $3,176 d. $3,335 (3-3) e. $3,502 Income statement C K M Answer: e EASY 80. Rao Construction recently reported $20.50 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What was Rao's operating income, or EBIT, in millions? a. $3.21 b. $3.57 c. $3.97 d. $4.41 (3-3) e. $4.90 Income statement C K M Answer: b EASY 81. Brown Office Supplies recently reported $15,500 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's earnings before taxes (EBT)? a. $4,627 b. $4,870 c. $5,114 d. $5,369 e. $5,638 (3-7) Free cash flow C K M Answer: d EASY 82. Vasudevan Inc. recently reported operating income of $2.75 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $0.6 million. How much was its free cash flow, in millions? a. $1.93 b. $2.03 c. $2.14 d. $2.25 e. $2.36 (3-8) MVA C K Answer: a EASY 83. Over the years, O'Brien Corporation's stockholders have provided $20,000,000 of capital, when they purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now has 1,000,000 shares of common stock outstanding, and it sells at a price of $38.50 per share. How much value has O'Brien's management added to stockholder wealth over the years, i.e., what is O'Brien's MVA? a. $18,500,000 b. $18,870,000 c. $19,247,400 d. $19,632,348 e. $20,024,995 (3-3) Income statement C K M Answer: d EASY/MEDIUM 84. Emery Mining Inc. recently reported $150,000 of sales, $75,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $16,500 of outstanding bonds that carry a 7.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder report [Show More]
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