A) Assets other than cash are expected to produce cash over time, and the amounts of cash they eventually produce should be exactly the same as the amounts at which the assets are carried on the books.
B) 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.
C) The annual report is an internal document prepared by a firm's managers solely for the use of its creditors/lenders.
D) The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and statement of stockholders' equity.
E) Prior to the Enron scandal in the early 2000s, companies would put verbal information in their annual reports, along with the financial statements. That verbal information was often misleading, so today annual reports can contain only quantitative information--audited financial statements.
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A) Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net working capital.
B) Changes in working capital have no effect on free cash flow.
C) Free cash flow (FCF) is defined as follows:
FCF = EBIT(1 - T)
+ Depreciation
- Capital expenditures required to sustain operations
- Required changes in net working capital.
D) Free cash flow (FCF) is defined as follows:
FCF = EBIT(1 - T) + Capital expenditures.
E) Managers should be less concerned with free cash flow than with accounting net income. Accounting net income is the "bottom line" and represents how much the firm can distribute to all its investors both creditors and stockholders.
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A) $71,425
B) $74,996
C) $78,746
D) $82,683
E) $86,818
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A) $688,500
B) $765,000
C) $800,000
D) $930,000
E) $1,023,000
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A) The more depreciation a firm reports, the higher its tax bill, other things held constant.
B) People sometimes talk about the firm's cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line."
C) Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's cash flow.
D) Operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes.
E) Depreciation is not a cash charge, so it does not have an effect on a firm's reported profits.
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A) $17.83
B) $18.72
C) $19.66
D) $20.64
E) $21.67
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A) Accounts receivable.
B) Inventory.
C) Bonds.
D) Cash.
E) Short-term, highly-liquid, marketable securities.
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A) Must be carried forward unless the company has had 2 loss years in a row.
B) Can be carried back 2 years, then carried forward up to 20 years following the loss.
C) Can be carried back 5 years and forward 3 years.
D) Cannot be used to reduce taxes in other years except with special permission from the IRS.
E) Can be carried back 3 years or forward 10 years, whichever is more advantageous to the firm.
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A) Nantell's taxable income will be lower.
B) Nantell's operating income (EBIT) will increase.
C) Nantell's cash position will improve (increase) .
D) Nantell's reported net income for the year will be lower.
E) Nantell's tax liability for the year will be lower.
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A) Retained earnings, as reported on the balance sheet, represents the amount of cash a company has available to pay out as dividends to shareholders.
B) 70% of the interest received by corporations is excluded from taxable income.
C) 70% of the dividends received by corporations is excluded from taxable income.
D) Because taxes on long-term capital gains are not paid until the gain is realized, investors must pay the top individual tax rate on that gain.
E) The corporate tax system favors equity financing, as dividends paid are deductible from corporate taxes.
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A) The company sold a new issue of bonds.
B) The company made a large investment in new plant and equipment.
C) The company paid a large dividend.
D) The company had high depreciation expenses.
E) The company repurchased 20% of its common stock.
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A) The company's dividend payment to common stockholders declined.
B) The company's expenditures on fixed assets declined.
C) The company's cost of goods sold increased.
D) The company's depreciation expense declined.
E) The company's interest expense increased.
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A) 6.90%
B) 7.26%
C) 7.64%
D) 8.02%
E) 8.42%
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A) $1,873
B) $1,972
C) $2,076
D) $2,185
E) $2,300
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