3/3/2015 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx 1/23
1. award:
10.00points
2. award:
10.00points
MCQu.6ToddandCathycreatedafirmthatis…
ToddandCathycreatedafirmthatisaseparatelegalentityandwillshareownershipofthatfirmona5050basis.Whichtypeofentitydid
theycreateiftheyhavenopersonalliabilityforthefirm’sdebts?
Limitedpartnership
→Corporation
Soleproprietorship
Generalpartnership
Publiccompany
RefertoSection1.3.
MultipleChoice Difficulty:Easy Section:1.3Formsofbusiness
organization
MCQu.6ToddandCathycreatedafirm
thatis...
LearningObjective:0103Comparethe
financialimplicationsofthedifferentforms
ofbusinessorganizations.
MCQu.32Whichofthefollowingareadvantagesofthe…
Whichofthefollowingareadvantagesofthecorporateformoforganization?
I.Abilitytoraiselargesumsofequitycapital
II.Easeofownershiptransfer
III.Profitstaxedatthecorporatelevel
IV.Limitedliabilityforallowners
IandIIonly
IIIandIVonly
II,III,andIVonly
→I,II,andIVonly
I,II,III,andIV
RefertoSection1.3.
MultipleChoice Difficulty:Medium Section:1.3Formsofbusiness
organization
MCQu.32Whichofthefollowingare
advantagesofthe…
LearningObjective:0103Comparethe
financialimplicationsofthedifferentforms
ofbusinessorganizations.
3/3/2015 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx 2/23
3. award:
10.00points
4. award:
10.00points
MCQu.36Theprimarygoaloffinancialmanagementis…
Theprimarygoaloffinancialmanagementistomaximizewhichoneofthefollowingforacorporation?
Currentprofits
Marketshare
Numberofsharesoutstanding
→Marketvalueofexistingstock
Revenuegrowth
RefertoSection1.4.
MultipleChoice Difficulty:Easy Section:1.4Thegoaloffinancial
management
MCQu.36Theprimarygoaloffinancial
managementis...
LearningObjective:0102Identifythegoal
offinancialmanagement.
Problem214CalculatingTotalCashFlows[LO4]
Weiland Co. shows the following information on its 2014 income statement: sales = $156,000; costs =
$81,300; other expenses = $4,600;depreciation expense=$10,300;interest expense =$7,800;taxes=
$18,200;dividends=$7,500.Inaddition,you’retoldthatthefirmissued$3,200innewequityduring2014,
andredeemed$5,100inoutstandinglongtermdebt.(Enteryouranswerasdirected,butdonotround
intermediatecalculations.)
Required:
(a) Whatistheoperatingcashflowduring2014?
Operatingcashflow $51,900±.1%
(b) Whatisthecashflowtocreditorsduring2014?
Cashflowtocreditors $12,900±.1%
(c) Whatisthecashflowtostockholdersduring2014?
Cashflowtostockholders $4,300±.1% 
(d) Assumingnetfixedassetsincreasedby$20,550duringtheyear,whatwastheadditiontoNWC?
Additiontonetworkingcapital $ 3,850±.1%
Explanation:
(a)
TocalculatetheOCF,wefirstneedtoconstructanincomestatement.Theincomestatementstartswith
revenuesandsubtractscoststoarriveatEBIT.Wethensubtractoutinteresttogettaxableincome,and
thensubtracttaxestoarriveatnetincome.Doingso,weget:
IncomeStatement
Sales $156,000 
Costs 81,300 
OtherExpenses 4,600 
Depreciation 10,300 
 
EBIT $ 59,800 
Interest 7,800 
 
Taxableincome $ 52,000 
3/3/2015 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx 3/23
Taxes 18,200 
 
Netincome $ 33,800 
 
Dividends $ 7,500
Additiontoretainedearnings   26,300
Dividendspaidplustheadditiontoretainedearningsmustequalnetincome,so:
Netincome=Dividends+Additiontoretainedearnings
Additiontoretainedearnings=$33,800–7,500
Additiontoretainedearnings=$26,300
So,theoperatingcashflowis:
OCF=EBIT+Depreciation–Taxes
OCF=$59,800+10,300–18,200
OCF=$51,900
(b)
Thecashflow tocreditors is theinterest paid, minusany new borrowing. Sincethecompanyredeemed
longtermdebt,thenetnewborrowingisnegative.So,thecashflowtocreditorsis:
Cashflowtocreditors=Interestpaid–Netnewborrowing
Cashflowtocreditors=$7,800–(–$5,100)
Cashflowtocreditors=$12,900
(c)
Thecashflowtostockholdersisthedividendspaidminusanynewequity.So,thecashflowto
stockholdersis:
Cashflowtostockholders=Dividendspaid–Netnewequity
Cashflowtostockholders=$7,500–3,200
Cashflowtostockholders=$4,300
(d)
Inthiscase,tofindtheadditiontoNWC,weneedtofindthecashflowfromassets.Wecanthenusethe
cashflowfromassetsequationtofindthechangeinNWC.Weknowthatcashflowfromassetsisequal
tocashflowtocreditorspluscashflowtostockholders.So,cashflowfromassetsis:
Cashflowfromassets=Cashflowtocreditors+Cashflowtostockholders
Cashflowfromassets=$12,900+4,300
Cashflowfromassets=$17,200
Netcapitalspendingisequaltodepreciationplustheincreaseinfixedassets,so:
Netcapitalspending=Depreciation+Increaseinfixedassets
Netcapitalspending=$10,300+20,550
Netcapitalspending=$30,850
NowwecanusethecashflowfromassetsequationtofindthechangeinNWC.Doingso,wefind:
Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending
$17,200=$51,900–ChangeinNWC–30,850
ChangeinNWC=$3,850
Worksheet Difficulty:Intermediate 
Problem214CalculatingTotalCashFlows
[LO4]
LearningObjective:0204Determinea
firm’scashflowfromitsfinancial
statements.
3/3/2015 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx 4/23
5. award:
10.00points
Problem27TaxRates[LO3]
TheSGSCo.had$297,000intaxableincome.UsetheratesfromTable2.3.(Enteryouransweras
directed,butdonotroundintermediatecalculations.)

Requirement1:
Whatistheaveragetaxrate?(Roundyouranswerto2decimalplaces(e.g.,32.16).)

Averagetaxrate 33.36±1% %

Requirement2:
Whatisthemarginaltaxrate?

Marginaltaxrate 39±1% %
:07_08_2011
Explanation:
UsingTable2.3,wecanseethemarginaltaxschedule.Thefirst$50,000ofincomeistaxedat15percent,
thenext$25,000istaxedat25percent,thenext$25,000istaxedat34percent,andthenext$197,000is
taxedat39percent.So,thetotaltaxesforthecompanywillbe:

Taxes=.15($50,000)+.25($25,000)+.34($25,000)+.39($297,000–100,000)
Taxes=$99,080

Theaveragetaxrateisthetotaltaxespaiddividedbytaxableincome,so:

Averagetaxrate=Totaltax/Taxableincome
Averagetaxrate=$99,080/$297,000
Averagetaxrate=.3336or33.36%

The marginal tax rate is the tax rate on the next dollar of income. The company has net income of
$297,000andthe39percenttaxbracketisapplicabletoanetincomeupto$335,000,sothemarginaltax
rateis39percent.
ViewHint#1
Worksheet Difficulty:Basic 
Problem27TaxRates[LO3]
LearningObjective:0203Explainthe
differencebetweenaverageandmarginal
taxrates.
3/3/2015 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx 5/23
6. award:
10.00points
Problem218MarginalversusAverageTaxRates[LO3]
(Refer to Table 2.3.) Corporation Growth has $87,000 in taxable income, and Corporation Income has
$8,700,000 in taxable income. (Enter your answer as directed, but do not round intermediate
calculations.)

Required:
(a) Whatisthetaxbillforeachfirm?

 Taxbill
CorporationGrowth $17,830±.1% 
CorporationIncome $2,958,000±.01%

(b) Suppose both firms have identified a new project that will increase taxable income by $5,000. How
muchinadditionaltaxeswilleachfirmpay?

 Additionaltaxes
CorporationGrowth $1,700±.1% 
CorporationIncome $1,700±.1% 
Explanation:
(a)
UsingTable2.3,wecanseethemarginaltaxschedule.ForCorporationGrowth,thefirst$50,000ofincome
is taxed at 15 percent, the next $25,000 is taxed at 25 percent, and the next $12,000 is taxed at 34
percent.So,thetotaltaxesforthecompanywillbe:
TaxesGrowth=0.15($50,000)+0.25($25,000)+0.34($12,000)
TaxesGrowth=$17,830
ForCorporationIncome,thefirst$50,000ofincomeistaxedat15percent,thenext$25,000istaxedat25
percent, thenext$25,000istaxedat34percent,thenext$235,000istaxedat39percent,andthenext
$8,365,000istaxedat34percent.So,thetotaltaxesforthecompanywillbe:
TaxesIncome=0.15($50,000)+0.25($25,000)+0.34($25,000)+0.39($235,000)+0.34($8,365,000)
TaxesIncome=$2,958,000

(b)
Themarginaltaxrateisthetaxrateonthenext$1ofearnings.Eachfirmhasamarginaltaxrateof34%
onthenext$5,000oftaxable income,despitetheirdifferent averagetaxrates, so bothfirmswillpayan
additional$1,700intaxes.
ViewHint#1
Worksheet Difficulty:Intermediate 
Problem218MarginalversusAverageTax
Rates[LO3]
LearningObjective:0203Explainthe
differencebetweenaverageandmarginal
taxrates.
3/3/2015 AssignmentPrintView
http://ezto.mheducation.com/hm_finance.tpx 6/23
7. award:
10.00points
Problem22BuildinganIncomeStatement[LO2]
Draiman, Inc., has sales of $592,000, costs of $266,000, depreciation expense of $67,500, interest
expense of $34,500, and a tax rate of 40 percent.(Enter your answer as directed, but do not round
intermediatecalculations.)
Required:
Whatisthenetincomeforthisfirm?
Netincome $134,400±.1% 
Explanation:
Theincomestatement starts withrevenuesandsubtracts costs to arriveatEBIT. Wethen subtractout
interesttogettaxableincome,andthensubtracttaxestoarriveatnetincome.Doingso,weget:
Incomestatement
Sales $ 592,000
Costs  266,000
Depreciation  67,500
EBIT $ 258,500
Interest  34,500
Taxableincome $ 224,000
Taxes(40%)  89,600
Netincome $ 134,400
ViewHint#1
Worksheet Difficulty:Basic 
Problem22BuildinganIncomeStatement
[LO2]
LearningObjective:0202Distinguish
accountingincomefromcashflow.
3/3/2015 AssignmentPrintView
8. award:
10.00points
Problem21BuildingaBalanceSheet[LO1]
Kroeger,Inc.,hascurrentassetsof$2,350,netfixedassetsof$11,100,current liabilitiesof$1,440,and
longtermdebtof$4,160.(Enteryouranswerasdirected,butdonotroundintermediatecalculations.)
Requirement1:
Whatisthevalueoftheshareholders’equityaccountforthisfirm?
Shareholder‘sequity $ 7,850±.1% 
Requirement2:
Howmuchisnetworkingcapital?
Networkingcapital $ 910±1% 
Explanation:
Thebalancesheetforthecompanywilllooklikethis:
Balancesheet
Currentassets $ 2,350Currentliabilities $ 1,440
Netfixedassets  11,100Longtermdebt 4,160
Owner’sequity  7,850
 