95) Which of the following is an inflow of cash?
A) Funds spent in normal business operations
B) The purchase of a new factory
C) The sale of the firm’s bonds
D) The retirement of the firm’s bonds
96) A statement of cash flows allows a financial analyst to determine
A) whether a cash dividend is affordable.
B) how increases in assets have been financed.
C) whether long-term assets are being financed with long-term or short-term financing.
D) All of the options
97) Which of the following would represent a use of funds and, indirectly, a reduction in cash
balances?
A) An increase in inventories
B) A decrease in marketable securities
C) An increase in accounts payable
D) The sale of new bonds by the firm
98) Which of the following would represent a positive source of funds and, indirectly, an
increase in cash balances?
A) A reduction in accounts receivable
B) The repurchase of shares of the firm’s stock
C) A decrease in net income
D) A reduction in notes payable
99) A firm’s purchase of plant and equipment would be considered a
A) use of cash for financing activities.
B) use of cash for operating activities.
C) source of cash for operating activities.
D) use of cash for investment activities.
100) 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
A) Two of these items decrease cash flow
B) Three of these items decrease cash flow
C) Four of these items decrease cash flow
D) Five of these items decrease cash flow
101) Depreciation is a source of cash inflow because
A) it is a non-cash expense, so it needs to be added back to net income when using the indirect
method.
B) it supplies cash for future asset purchases.
C) it is a tax-deductible cash expense.
D) it is a taxable expense.
102) Preferred stock dividends ________ earnings available to common stockholders.
A) increase
B) decrease
C) do not effect
D) There is not enough information to determine.
103) Free cash flow is used to help determine:
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.
the amount of cash that is available for extra activities that the firm may want to get involved
in.
the amount of cash that is considered taxable for federal income taxes.
A) Option I only
B) Option II only
C) Options I and III
D) Options I and II.
104) 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
A) $396,000
B) $270,000
C) $326,000
D) $130,000
Cash flow from operations activities
$
200,000
− Capital Expenditures
50,000
− Common stock dividends
20,000
Free Cash flow
$
130,000
105) Assuming a tax rate of 21%, depreciation expenses of $500,000 will
A) reduce income by $15,000.
B) reduce taxes by $105,000.
C) reduce taxes by $150,000.
D) have no effect on income or taxes, since depreciation is not a cash expense.
106) Assuming a tax rate of 21%, the after-tax cost of interest expense of $1,000,000 is
A) $1,000,000
B) $79,000
C) $790,000
D) $400,000
107) Assuming a tax rate of 21%, the after-tax cost of a $100,000 dividend payment is
A) $100,000
B) $70,000
C) $30,000
D) None of the options
108) 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
A) $1.30.
B) $1.10.
C) $0.75.
D) $0.80.
109) 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 21 percent, compute the cash
flow from operations for Gerry Co.
A) $834,500
B) $550,000
C) $330,000
D) None of the options
110) 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?
A) $1,000,000.
B) $530,000
C) $350,000
D) $650,000
111) 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
A) $84.00.
B) $53.00.
C) $75.00.
D) $65.00.
112) The best indication of the operational efficiency of management is
A) net income.
B) earnings per share.
C) earnings before interest and taxes (EBIT).
D) gross profit.
113) Which of the following would indicate an accurate statement of cash flows?
A) Net cash flow is equal to marketable securities balance
B) Net cash flows from financing activities are equal to the change in stockholder’s equity
C) Net cash flow is equal to the ending cash balance
D) Net cash flow is equal to the change in the cash balance
114) An increase of $100,000 in inventory would result in a(n)
A) Decrease of net cash flow.
B) Increase in net cash flow.
C) Decrease in marketable securities.
D) Increase in bonds payable.
115) 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.
A) $370,000
B) $300,000
C) $250,000
D) $310,000
116) One of the primary factors evaluated when a company is pursuing a leveraged buyout is
A) Net cash flow.
B) Free cash flow.
C) Cash flow from financing activities.
D) Cash flow from investing activities.