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Fin 320, midterm exam solutions 3-21-2011

# Fin 320, midterm exam solutions 3-21-2011 - Midterm Exam...

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Midterm Exam, Fin 320, Prof Harvey Poniachek, Fall 2010 midterm exam Key 1. A firm has \$520 in inventory, \$1,860 in fixed assets, \$190 in accounts receivables, \$210 in accounts payable, and \$70 in cash. What is the amount of the current assets? A. \$710 B. \$780 C. \$990 D. \$2,430 E. \$2,640 Current assets = \$520 + \$190 + \$70 = \$780 AACSB: Analytic Blooms: Application Difficulty: Basic Learning Objective: 2-1 Ross - Chapter 02 #46 Section: 2.1 Topic: Current assets 2. Bonner Collision has shareholders' equity of \$141,800. The firm owes a total of \$126,000 of which 60 percent is payable within the next year. The firm net fixed assets of \$161,900. What is the amount of the net working capital? Current liabilities = .60 × \$126,000 = \$75,600 Total assets = \$141,800 + \$126,000 = \$267,800 Current assets = \$267,800 - \$161,900 = \$105,900 Net working capital = \$105,900 - \$75,600 = \$30,300 AACSB: Analytic Blooms: Analysis Difficulty: Intermediate Learning Objective: 2-1 Ross - Chapter 02 #50 Section: 2.1 Topic: Net working capital 1

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3. Given the tax rates as shown, what is the average tax rate for a firm with taxable income of \$311,360? Tax = .15(\$50,000) + .25(\$25,000) + .34(\$25,000) + .39(\$211,360) = \$104,680.40 Average tax rate = \$104,680.40/\$311,360 = 33.62 percent AACSB: Analytic Blooms: Application Difficulty: Basic Learning Objective: 2-3 Ross - Chapter 02 #56 Section: 2.3 Topic: Average tax rate 4. Crandall Oil has total sales of \$1,349,800 and costs of \$903,500. Depreciation is \$42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow? Earnings before interest and taxes = \$1,349,800 - \$903,500 - \$42,700 = \$403,600 Tax = \$403,600 × .34 = \$137,224 Operating cash flow = \$403,600 + \$42,700 - \$137,224 = \$309,076 AACSB: Analytic Blooms: Application Difficulty: Basic Learning Objective: 2-4 Ross - Chapter 02 #59 Section: 2.4 Topic: OCF 2
5. The Lakeside Inn had operating cash flow of \$48,450. Depreciation was \$6,700 and interest paid was \$2,480. A net total of \$2,620 was paid on long-term debt. The firm spent \$24,000 on fixed assets and decreased net working capital by \$1,330. What is the amount of the cash flow to stockholders? A. \$5,100 B. \$7,830 C. \$18,020 D. \$19,998 E. \$20,680 Cash flow from assets = \$48,450 - (-\$1,330) - \$24,000 = \$25,780 Cash flow to creditors =\$2,480 - (-\$2,620) = \$5,100 Cash flow to stockholders = \$25,780 - \$5,100 = \$20,680 AACSB: Analytic Blooms: Analysis Difficulty: Intermediate Learning Objective: 2-4 Ross - Chapter 02 #65 Section: 2.4 Topic: Cash flow to stockholders 6. Which one of the following is a source of cash? Refer to section 3.1 AACSB: N/A Blooms: Knowledge Difficulty: Basic Learning Objective: 3-1 Ross - Chapter 03 #11 Section: 3.1 Topic: Source of cash

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Fin 320, midterm exam solutions 3-21-2011 - Midterm Exam...

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