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Unformatted text preview: Build your own FREE website at Angelfire.com Share: del.icio.us | digg | reddit | Twitter | facebook FIN 350 MINI TEST 1 CHAPTER 2 A 1. A firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000. If the firm pays 8 percent interest on its long-term debt, what interest rate does it pay on its notes payable? 16.8% 2. A start-up firm is making an initial investment in new plant and equipment. Currently, equipment is depreciated on a straight-line basis over 10 years. Assume that Congress is considering legislation that will allow the corporation to depreciate the equipment over 7 years. If the legislation becomes law, and the firm implements the 7-year depreciation basis, which of the following will occur? The firm's net cash flow will increase. 3. A stock analyst has acquired the following information for Palmer Products: Retained earnings on the year-end 2001 balance sheet was $700,000. Retained earnings on the year-end 2002 balance sheet was $320,000. The company does not pay dividends. The company's depreciation expense is its only non-cash expense. The company has no non-cash revenues. The company's net cash flow for 2002 was $150,000. On the basis of this information, which of the following statements is most correct? Palmer Products had negative net income in 2002. 4. A stock market analyst has forecasted the following year-end numbers for Raedebe Technology: Sales $70 million EBITDA $20 million Depreciation $ 7 million Amortization $ 0 The company's tax rate is 40 percent. The company does not expect any changes in its net operating working capital. This year the company's planned gross capital expenditures will total $12 million. (Gross capital expenditures represent capital expenditures before deducting depreciation.) What is the company's forecasted free cash flow for the year? $ 2.8 million 5. All else equal, which of the following actions will increase the amount of cash on a company's balance sheet? The company issues new common stock. 6. An analyst has acquired the following information regarding Company A and Company B: Company A has a higher net cash flow than Company B. Company B has higher net income than Company A. Company B has a higher operating cash flow than Company A. The companies have the same tax rate, investor-supplied operating capital, and cost of capital (WACC). Assume that non-cash revenues equal zero for both companies, and depreciation is the only non-cash expense for both companies. Which of the following statements is most correct? All of the statements above are correct. 7. An analyst has collected the following information regarding Gilligan Grocers: Earnings before interest and taxes (EBIT) = $700 million....
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