Tutorial 2 - Questions

FIN40104 – INTRODUCTION TO FINANCE
TUTORIAL QUESTIONS

TUTORIAL 2 – CHAPTER 2 (FINANCIAL STATEMENTS, TAXES & CASHFLOWS)

Name: _________________________ Student ID: ________________

Section A - Multiple Choice Questions.
Instruction: Circle ONE best answer.

1. Net working capital is defined as: D. total assets minus total liabilities.
A. the depreciated book value of a firm's fixed
assets. E. current assets minus current
B. the value of a firm's current assets. liabilities.

C. available cash minus current liabilities.

2.The accounting statement that measures the revenues, expenses, and net income of
a firm over a period of time is called the:

A. statement of cash flows. D. balance sheet.

B. income statement. E. net working capital schedule.

C. GAAP statement.

3. The financial statement that summarizes a firm's accounting value as of a particular
date is called the:

A. income statement. D. balance sheet.

B. cash flow statement. E. periodic operating statement.

C. liquidity position.

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FIN40104 – INTRODUCTION TO FINANCE
TUTORIAL QUESTIONS

4. Which one of the following is an intangible fixed asset?

A. Inventory D. Account receivable

B. Machinery E. Building

C. Copyright

5. Delivery trucks are classified as: D. tangible fixed assets.
A. noncash expenses. E. intangible fixed assets.
B. current liabilities.
C. current assets.

6. Which one of the following is included in net working capital?

A. Land D. Depreciation

B. Accounts payable E. Dividend

C. Equipment

7. Which one of the following is included in net working capital?
A. Newly purchased equipment with a useful life of 6 years
B. Mortgage on a building payable over the next 12 years
C. Interest on a long-term debt
D. 10-year bonds issued to the general public
E. Invoice from a supplier for inventory purchased

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FIN40104 – INTRODUCTION TO FINANCE
TUTORIAL QUESTIONS

8. Shareholders' equity is equal to:
A. total assets plus total liabilities.
B. net fixed assets minus total liabilities.
C. net fixed assets minus long-term debt plus net working capital.
D. net working capital plus total assets.
E. total assets minus net working capital.

9. Which one of the following is an equity account?

A. Paid-in surplus D. Depreciation

B. Bonds payable E. Net fixed assets

C. Patent

10. Which one of the following statements concerning market and book values is
correct?

A. The market value of accounts receivable is generally higher than the book value
of those receivables.

B. The market value tends to provide a better guide to the actual worth of an asset
than does the book value.

C. The market value of fixed assets will always exceed the book value of those
assets.

D. Book values represent the amount of cash that will be received if an asset is sold.

E. The current book value of equipment purchased last year is equal to the initial
cost of the equipment.

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FIN40104 – INTRODUCTION TO FINANCE
TUTORIAL QUESTIONS

11. Which one of the following is included in the market value of a firm but not in the
book value?
A. Raw materials
B. Partially built inventory
C. Tax liability
D. Reputation of the firm
E. Value of a partially depreciated machine

12. The market value of a firm's fixed assets:
A. must exceed the book value of those assets.
B. is more predictable than the book value of those assets.
C. in addition to the firm's net working capital reflects the true value of a firm.
D. is decreased annually by the depreciation expense.
E. is equal to the estimated current cash value of those assets.

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FIN40104 – INTRODUCTION TO FINANCE
TUTORIAL QUESTIONS

Section B - Problem Questions.
Instruction: You are required to show clear workings before arrive at your final answer.

1. The Plaza Cafe has an operating cash flow of $78,460, depreciation expense of
$8,960, and taxes paid of $21,590. A partial listing of its balance sheet accounts is
as follows:

What is the amount of the cash flow from assets?

2. Miser Materials paid $27,500 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
$21,000 in long-term debt. What is the amount of the cash flow from assets?

3. The Pretzel Factory has net sales of $821,300 and costs of $698,500. The
depreciation expense is $28,400 and the interest paid is $8,400. What is the amount
of the firm's operating cash flow if the tax rate is 34 percent?

4. For the past year, LP Gas, Inc. had cash flow from assets of $38,100 of which
$21,500 flowed to the firm's stockholders. The interest paid was $2,300. What is the
amount of the net new borrowing?

5. Precision Manufacturing had the following operating results for 2014: sales =
$38,900; cost of goods sold = $24,600; depreciation expense = $1,700; interest
expense = $1,400; dividends paid = $1,000. At the beginning of the year, net fixed
assets were $14,300, current assets were $8,700, and current liabilities were $6,600.
At the end of the year, net fixed assets were $13,900, current assets were $9,200,
and current liabilities were $7,400. The tax rate for 2014 was 34 percent. What is the
cash flow from assets for 2014?

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FIN40104 – INTRODUCTION TO FINANCE
TUTORIAL QUESTIONS

6. Home Supply, Inc. has compiled the following information:

For 2014, the cash flow from assets is _____ and the cash flow to shareholders is
______.
*********************************** END OF QUESTIONS **********************************

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