INTRODUCTION TO FINANCE (FIN60104/BUS1204) Quiz (Solutions) INTRODUCTION TO FINANCE (FIN60104/BUS1204)

Financial Management Decisions 1. Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of: A. capital structure management. B. asset allocation. C. risk management. D. capital budgeting E. working capital management. The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing.

Financial Management Decisions 2. Stadford, Inc. is financed with 40 percent debt and 60 percent equity. This mixture of debt and equity is referred to as the firm's: A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure.

Financial Management Decisions 3. Lester's BBQ has $121,000 in current assets and $109,000 in current liabilities. These values as referred to as the firm's: A. capital structure. B. cash equivalents. C. working capital. D. net assets. E. fixed accounts.

Financial Statements 4. The financial statement that summarizes a firm's accounting value as of a particular date is called the: A. income statement. B. cash flow statement. C. liquidity position. D. balance sheet. E. periodic operating statement. Income Statement: A financial statement that measures a company's financial performance over a specific accounting period.  Balance sheet: A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time.

Taxes 5. Which one of the following terms is defined as the total tax paid divided by the total taxable income? A. Average tax rate B. Variable tax rate C. Marginal tax rate D. Absolute tax rate E. Contingent tax rate

Working with Financial Statements: Figure 1 Assets Liabilities Cash 193,000 Account Payable 296,000 Account Receivables 253,000 Notes payable 189,000 Inventory 538,000 Long-term debt 1,250,000 Fixed Assets 5,947,000

Working with Financial Statements Use Figure 1 to calculate Questions 6 and 7: 6. Calculate current ratio and net working capital. (Answer: current ratio 984/485 = 2.03 times; NWC = $499,000). 7. Compute the owners’ equity? (Answer: $5,196,000)

Working with Financial Statements 8. The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of $26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net income for this firm? Answer: Net income = ($398,600 - $254,800 - $26,400 - $1,600) (1 - 0.34) = $76,428

Working with Financial Statements 9. Keyser Materials paid $7,500 in dividends and $28,311 in interest over the past year while net working capital increased from $13,506 to $18,219. The company purchased $42,000 in net new fixed assets and had depreciation expenses of $16,805. During the year, the firm issued $25,000 in net new equity and paid off $11,000 in long-term debt. What is the amount of the cash flow from assets? Answer: Cash flow from assets = ($28,311 + $11,000) + ($7,500 - $25,000) = $21,811

Working with Financial Statements The Paper Moon has an operating cash flow of $187,000 and a cash flow to creditors of $61,400 for the past year. During that time, the firm invested $28,000 in net working capital and incurred net capital spending of $48,900. What is the amount of the cash flow to stockholders for the last year? CF from Assets = OCF – NCS – ΔNWC CF2C+CF2S= OCF – NCS – ΔNWC CF2S = OCF – NCS – ΔNWC – CF2C = 187000-48900-28000-61400 CF2S = 48700 Answer: Cash flow to stockholders = ($187,000 - $28,000 - $48,900) - $61,400 = $48,700