Economics Chapter 2 2 ratio is influenced by all of the following but

71. Price-earnings (P/E) ratio is influenced by all of the following BUT

72. Reinvested funds into retained earnings theoretically belong to

73. When a firm’s earnings are falling more rapidly than its stock price, its P/E ratio will

74. Which of the following factors do not influence the firm’s P/E ratio?

75. Which of the following would not be classified as a current asset?

76. An item which may be converted to cash within one year or one operating cycle of the firm is classified

as a

77. Asset accounts on the balance sheet are listed in order of

78. Which of the following is not a primary source of raising money or capital for the firm?

79. How many of the following balance sheet items are classified as a current asset or current liability?

•Retained earnings

•Accounts payable

•Plant and equipment

•Inventory

•Common stock

•Bonds payable

•Accrued wages payable

•Accounts receivable

•Preferred stock

80. How many of the following items are found on the balance sheet, rather than the income statement?

•Accounts receivable

•Retained earnings

•Income tax expense

•Accrued payable

•Cash

•Selling and administrative expenses

•Plant and equipment

•Operating expense

•Marketable securities

•Interest expense

81. How many of the following items are found on the income statement, rather than the balance sheet?

•Sales

•Notes payable (due in six months

•Bonds payable (mature in 10 years

•Common stock

•Depreciation expense

•Inventories

•Capital in excess of par value

•Net income (earnings after taxes)

•Income tax payable

82. Which account represents the cumulative earnings of the firm since the firm started, minus dividends

paid?

83. The major limitation of financial statements are

84. Net worth is equal to stockholders’ equity

85. Book value is the same as

86. Total stockholders’ equity consists of

87. The net worth of a firm

Topic: Balance sheet

88. The book value per share is based off of ________ data, while the market value per share is based off

of_________ data.

89. The primary disadvantage of accrual accounting is that

90. The statement of cash flows does not include which of the following sections?

91. Which of the following is an outflow of cash?

92. Which of the following is an inflow of cash?

93. A statement of cash flows allows a financial analyst to determine

94. Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?

95. Which of the following would represent a positive source of funds and, indirectly, an increase in cash

balances?

96. A firm’s purchase of plant and equipment would be considered a

97. How many of the following items decrease cash flow in the statement of cash flows?

• Increase in accounts receivable

• Increase in notes payable

• Depreciation expense

• Increase in investments

• Decrease in accounts payable

• Decrease in prepaid expenses

• Dividend payment

• Increase in accrued expenses

98. Depreciation is a source of cash inflow because

99. Preferred stock dividends __________ earnings available to common stockholders.

100. Free cash flow is used to help determine:

I. the amount of cash that is generated from the business operations, including normal sales and normal

costs, payments made to owners, and purchases of property.

II. the amount of cash that is available for extra activities that the firm may want to get involved in.

III. the amount of cash that is considered taxable for federal income taxes.

101. Given the following, what is free cash flow?

Cash flow from operating activities $200,000

Cash flow from investing activities $140,000

Cash flow from financing activities $56,000

Building purchases$50,000

Dividends Paid $20,000

102. Assuming a tax rate of 40%, depreciation expenses of $500,000 will

103. Assuming a tax rate of 40%, the after-tax cost of interest expense of $1,000,000 is

104. Assuming a tax rate of 30%, the after-tax cost of a $100,000 dividend payment is

Gradable: automatic

Learning Objective: 02-04 The statement of cash flows indicates changes in the cash position of the firm.

Topic: Taxes

105. Farah Snack Co. has earnings after taxes of $150,000. Interest expense for the year was $20,000;

preferred dividends paid were $20,000; and common dividends paid were $30,000. Taxes were $22,500.

The firm has 100,000 shares of common stock outstanding. Earnings per share on the common stock was

106. Gerry Co. has a gross profit of $1,200,000 and depreciation expense of $400,000. Selling and

administrative expense is $250,000. Given that the tax rate is 40 percent, compute the cash flow from

operations for Gerry Co.

107. Hoover Inc. has current assets of $350,000 and fixed plant assets of $650,000. Current liabilities are

$100,000 and long-term liabilities are $250,000. There is $120,000 in preferred stock outstanding and the

firm has issued 10,000 shares of common stock. What is the firm’s total equity?

108. Hoover Inc. has current assets of $350,000 and fixed plant assets of $650,000. Current liabilities are

$100,000 and long-term liabilities are $250,000. There is $120,000 in preferred stock outstanding and the

firm has issued 10,000 shares of common stock. Compute book value (net worth) per share

109. The best indication of the operational efficiency of management is

110. Which of the following would indicate an accurate statement of cash flows?

111. An increase of $100,000 in inventory would result in a(n)

112. Compute the cash flows from operations using the indirect method if Star Corporation had $250,000 in

net income, $30,000 in depreciation expense, a decrease of $20,000 in accounts receivable and an

increase in bonds payable of $50,000.

113. One of the primary factors evaluated when a company is pursuing a leveraged buyout is

Chapter 02 Test Bank – Static Summary