Financial Statements, Cash Flow, and Taxes2

Financial Statements, Cash Flow, and Taxes2 - ROE 18% 24%...

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Old Exam Questions - Financial Statements, Cash Flow, and Taxes Page 7 of 44 Pages ROE 18% 24% On the basis of the information above, select the statement that is most correct . A. Company A has a higher total assets turnover than Company B. B. Company A has a higher debt ratio than Company B. C. Company A has higher net income than Company B. D. Statements A and B are correct. E. All of the statements above are correct. 13. Select the statement that is most correct . A. Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income. B. The percent of sales method of forecasting financial needs requires only a forecast of the firm’s balance sheet. Although a forecasted income statement helps clarify the need, it is not essential to the percent of sales method. C. Because dividends are paid after taxes from retained earnings, dividends are not included in the percent of sales method of forecasting. D. Financing feedbacks describe the fact that interest must be paid on the debt used to help finance AFN and dividends must be paid on the shares issued to raise the equity part of the AFN. These payments would lower the net income and retained earnings shown in the projected financial statements. E. None of the statements above is correct. 1. Assume that you can purchase $10,000 of State of Florida bonds that have a coupon rate of 5 percent and will therefore pay you interest of $500 per year. Alternatively, you can purchase $10,000 of IBM bonds that have a coupon rate of 6.25 percent and therefore pay you interest of $625 per year. At what tax rate would you be indifferent between holding the two bonds? A. 26% B. 14% C. 24% D. 20% E. 32% YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 2 - 4 Income Statement 2001 2002 Sales $4,500.00 Operating Costs -$3,600.00 Depreciation -$400.00 EBIT $500.00 Interest (8%) -$160.00
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Old Exam Questions - Financial Statements, Cash Flow, and Taxes Page 8 of 44 Pages EBT $340.00 Taxes (40%) $136.00 Net Income $204.00 Dividends $50.00 Addition to RE $154.00 Balance Sheet 2001 2002 Cash $200.00 $300.00 Inventory $4,000.00 $4,500.00 Accounts Receivable $1,000.00 $1,500.00 Current Assets $5,200.00 $6,300.00 Gross Fixed Assets $3,000.00
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Financial Statements, Cash Flow, and Taxes2 - ROE 18% 24%...

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