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4. The Statement of Equity Depreciation Free Cash Flow MVA and EVA Other Statements Financial Statements, Taxes, and Cash Flow > Other Statements Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_36&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=dir ect&utm_source=boundless

5. The statement breaks down changes in the owners' interest in the organization. Line items typically include profits or losses from operations, dividends paid, issue or redemption of stock, and any other items charged or credited to retained earnings. Owners' equity = assets − liabilities. The statement of equity uses information from the income statement and provides information to the balance sheet. Ending retained earnings = beginning retained earnings − dividends paid + net income. The Statement of Equity Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/financial-statements-taxes-and-cash-flow-2/other-statements-36/the- statement-of-equity-198- 6605?campaign_content=book_192_section_36&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess The Statement of Retained Earnings and Stockholders' Equity View on Boundless.com Financial Statements, Taxes, and Cash Flow > Other Statements

6. Depreciation refers to the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle). Generally this involves four criteria: cost of the asset, expected salvage value (residual value of the asset), estimated useful life of the asset, and a method of apportioning the cost over such life. There are several methods for calculating depreciation, generally based on either the passage of time or the level of activity of the asset: straight-line depreciation, accelerated depreciation methods, activity depreciation methods, sum-of-years' digits method, and units-of-production method. Depreciation Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/financial-statements-taxes-and-cash-flow-2/other-statements-36/depreciation- 199- 7961?campaign_content=book_192_section_36&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Depreciation View on Boundless.com Financial Statements, Taxes, and Cash Flow > Other Statements

7. There are four different methods for calculating free cash flows. Free cash flow measures the ease with which businesses can grow and pay dividends to shareholders. Net income and free cash flows are different. Some investors prefer using free cash flow instead of net income to measure a company's financial performance because free cash flow is more difficult to manipulate than net income. Free Cash Flow Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/financial-statements-taxes-and-cash-flow-2/other-statements-36/free-cash- flow-200- 7962?campaign_content=book_192_section_36&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Free Cash Flow View on Boundless.com Financial Statements, Taxes, and Cash Flow > Other Statements

8. Market Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors. Economic Value Added or EVA, is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors (being shareholders and debt holders). The firm's market value added, or MVA, is the discounted sum (present value) of all future expected economic value added: MVA = Present Value of a series of EVA values. MVA and EVA Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/financial-statements-taxes-and-cash-flow-2/other-statements-36/mva-and-eva- 201- 4887?campaign_content=book_192_section_36&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess MVA View on Boundless.com Financial Statements, Taxes, and Cash Flow > Other Statements

9. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

10. Key terms amortization The distribution of the cost of an intangible asset, such as an intellectual property right, over the projected useful life of the asset. capital expenditure Funds spent by a company to acquire or upgrade a long-term asset. net working capital current assets minus current liabilities NOPAT NOPAT (net operating profit after tax) is profits derived from a company's operations after cash taxes but before financing costs and non-cash bookkeeping entries. It is the total pool of profits available to provide a cash return to those who provide capital to the firm. retained earnings The portion of net income that is retained by the corporation rather than distributed to its owners as dividends. salvage value The estimated value of an asset at the end of its useful life. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow

11. MVA Calculation of MVA Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Market value added." GNU FDL http://en.wikipedia.org/wiki/Market_value_added View on Boundless.comGNU FDLhttp://en.wikipedia.org/wiki/Market_value_addedView on Boundless.com Financial Statements, Taxes, and Cash Flow

12. Depreciation This is the units-of-production method for calculating depreciation. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Depreciation." GNU FDL http://en.wikipedia.org/wiki/Depreciation View on Boundless.comGNU FDLhttp://en.wikipedia.org/wiki/DepreciationView on Boundless.com Financial Statements, Taxes, and Cash Flow

13. MVA and EVA MVA is the present value of a series of EVA values. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Economic value added." GNU FDL http://en.wikipedia.org/wiki/Economic_value_added View on Boundless.comGNU FDLhttp://en.wikipedia.org/wiki/Economic_value_addedView on Boundless.com Financial Statements, Taxes, and Cash Flow

14. Depreciation This is the formula used to calculate straight-line depreciation. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Depreciation." GNU FDL http://en.wikipedia.org/wiki/Depreciation View on Boundless.comGNU FDLhttp://en.wikipedia.org/wiki/DepreciationView on Boundless.com Financial Statements, Taxes, and Cash Flow

15. Free Cash Flow An example of calculating free cash flow. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "DCFM Calculator." CC BY-SA http://commons.wikimedia.org/wiki/File:DCFM_Calculator.JPG View on Boundless.comCC BY-SAhttp://commons.wikimedia.org/wiki/File:DCFM_Calculator.JPGView on Boundless.com Financial Statements, Taxes, and Cash Flow

16. The Statement of Retained Earnings and Stockholders' Equity The statement of retained earnings uses information from the income statement and provides information to the balance sheet. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Analyzing Financial Data | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/davedugdale/5099605109/sizes/l/ View on Boundless.comCC BYhttp://www.flickr.com/photos/davedugdale/5099605109/sizes/l/View on Boundless.com Financial Statements, Taxes, and Cash Flow

17. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow Which of the following is not included in a company's statement of equity? A) Goodwill B) Dividends paid C) Profits/losses from opoerations D) Redemption of Stock

18. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow Which of the following is not included in a company's statement of equity? A) Goodwill B) Dividends paid C) Profits/losses from opoerations D) Redemption of Stock

19. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow A company's retained earnings at the beginning of the year is $1 million. It paid $100,000 in dividends, had $250,000 in net income, and its goodwill increased by $10,000. What is its retained earnings as of the end of the year? A) $1,160,00 B) $1,150,000 C) $1,250,000 D) $1,260,000

20. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow A company's retained earnings at the beginning of the year is $1 million. It paid $100,000 in dividends, had $250,000 in net income, and its goodwill increased by $10,000. What is its retained earnings as of the end of the year? A) $1,160,00 B) $1,150,000 C) $1,250,000 D) $1,260,000

21. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow Which of the following is a correct way to calculate depreciation expense? A) Straight-line = (acquisition cost - salvage value) / number of years of the asset's useful life B) Activity depreciation = (acquisition cost - salvage value) / unit of activity (e.g. miles driven) C) All of these answers D) Accelerated Depreciation = Depreciation Rate * Book Value at Beginning of Year

22. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow Which of the following is a correct way to calculate depreciation expense? A) Straight-line = (acquisition cost - salvage value) / number of years of the asset's useful life B) Activity depreciation = (acquisition cost - salvage value) / unit of activity (e.g. miles driven) C) All of these answers D) Accelerated Depreciation = Depreciation Rate * Book Value at Beginning of Year

23. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow A company had an after tax profit of $1,500,000. Its debt to equity ratio was 0.5. It had $200,000 in capital expenditures for the year and a $100,000 increase in working capital. It had $250,000 in depreciation expenses. What is its free cash flow? A) $1,400,000 B) $1,225,000 C) $1,275,000 D) $1,150,000

24. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow A company had an after tax profit of $1,500,000. Its debt to equity ratio was 0.5. It had $200,000 in capital expenditures for the year and a $100,000 increase in working capital. It had $250,000 in depreciation expenses. What is its free cash flow? A) $1,400,000 B) $1,225,000 C) $1,275,000 D) $1,150,000

25. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow A company has earnings before income tax of $2 million and a 15% tax rate. It had $250,000 in depreciation expenses with a $50,000 increase in working capital. It had another $100,00 in capital expenditures. What is its free cash flow. A) $1,700,000 B) $1,800,000 C) $1,950,000 D) $1,850,000

26. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow A company has earnings before income tax of $2 million and a 15% tax rate. It had $250,000 in depreciation expenses with a $50,000 increase in working capital. It had another $100,00 in capital expenditures. What is its free cash flow. A) $1,700,000 B) $1,800,000 C) $1,950,000 D) $1,850,000

27. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow When is a business a good investment based on the Market Value Added (MVA) metric? A) MVA is positive. B) MVA exceeds the investors' initial investment. C) MVA is greater than the business's net operating profit after taxes. D) The MVA is greater than what the investors could have received by investing in the market portfolio.

28. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow When is a business a good investment based on the Market Value Added (MVA) metric? A) MVA is positive. B) MVA exceeds the investors' initial investment. C) MVA is greater than the business's net operating profit after taxes. D) The MVA is greater than what the investors could have received by investing in the market portfolio.

29. Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow Assume a businesses's return on investment capital is 8%,its weighted average cost of capital is 4%, and its economic capital employed is $1,000,000. What is its EVA? A) $400,000 B) $120,000 C) $40,000 D) $60,000

30. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Financial Statements, Taxes, and Cash Flow Assume a businesses's return on investment capital is 8%,its weighted average cost of capital is 4%, and its economic capital employed is $1,000,000. What is its EVA? A) $400,000 B) $120,000 C) $40,000 D) $60,000

31. Attribution Wikipedia. "Economic value added." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Economic_value_addedCC BY-SA 3.0http://en.wikipedia.org/wiki/Economic_value_added Wikipedia. "Market value added." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Market_value_addedCC BY-SA 3.0http://en.wikipedia.org/wiki/Market_value_added Wikipedia. "NOPAT." CC BY-SA 3.0 http://en.wikipedia.org/wiki/NOPATCC BY-SA 3.0http://en.wikipedia.org/wiki/NOPAT Wikipedia. "Statement of retained earnings." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Statement_of_retained_earningsCC BY-SA 3.0http://en.wikipedia.org/wiki/Statement_of_retained_earnings Wiktionary. "retained earnings." CC BY-SA 3.0 http://en.wiktionary.org/wiki/retained+earningsCC BY-SA 3.0http://en.wiktionary.org/wiki/retained+earnings Wikipedia. "Depreciation." CC BY-SA 3.0 http://en.wikipedia.org/wiki/DepreciationCC BY-SA 3.0http://en.wikipedia.org/wiki/Depreciation Wikipedia. "salvage value." CC BY-SA 3.0 http://en.wikipedia.org/wiki/salvage%20valueCC BY-SA 3.0http://en.wikipedia.org/wiki/salvage%20value Wikipedia. "Free cash flow." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Free_cash_flowCC BY-SA 3.0http://en.wikipedia.org/wiki/Free_cash_flow Wikipedia. "Net working capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Net_working_capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/Net_working_capital Wiktionary. "amortization." CC BY-SA 3.0 http://en.wiktionary.org/wiki/amortizationCC BY-SA 3.0http://en.wiktionary.org/wiki/amortization Wiktionary. "capital expenditure." CC BY-SA 3.0 http://en.wiktionary.org/wiki/capital+expenditureCC BY-SA 3.0http://en.wiktionary.org/wiki/capital+expenditure Free to share, print, make copies and changes. Get yours at www.boundless.com Financial Statements, Taxes, and Cash Flow