Which action could explain a firm having a high level of Operating Cash Flow
Which action could explain a firm having a high level of Operating Cash Flow
Subject: Business / Finance
Question
2. Whichaction could explain a firm having a high level of Operating Cash Flow but alow
level of free cash flow?
a. Thecompany had a high level of Depreciation.
b. Thecompany paid a large dividend.
c. Thecompany made a large investment in a new plant.
d. Thecompany issued new long-term debt.
3. ___________ is the amount available for distribution to all investorsafter the company has made all investments in fixed assets and operatingworking capital.
a. CapitalExpenditures
b. FreeCash Flow
c. CashFlows from Financing
d. AdditionalFinancing Needed
4. Which of the following is CORRECT?
a. Depreciation is a Use of Funds
b. Investment in Net Working Capital is part of CashFlow from Investing
c. Additional Financing Needed is part of Cash Flowfrom Financing
d. Dividends increase the amount of equity
5. If you were evaluating a corporation’s ability to meet currentobligations, then you would most likely want to look at their ____________ratios.
a. Market
b. Productivity
c. DebtManagement
d. Liquidity
6 . Theterm “additional funds needed (AFN)” is generally defined as:
a. Fundsthat are obtained automatically from routine business transactions.
b. Fundsthat a firm must raise externally from non-spontaneous sources
c. Theamount of assets required per dollar of sales.
d. Theamount of internally generated cash in a given year
7. Comparing your firm’sratios to those of similar firms in your industry in known as
a. Benchmarking
b. Trend Analysis
c. DuPont Analysis
d. Common-Size Analysis
8. Which of the following statements is CORRECT?
a. Accounts payable are reported as a current liability on thebalance sheet.
b. Dividends paid reduce the net income that is reported on acompany’s income statement.
c. If a company makes no capital expenditures, their fixedassets will remain the same
d. If a company pays less in dividends than it generates in netincome, its equity as reported on the balance sheet will fall.
9. Suppose the firm were to buy Inventory oncredit (both Current Assets and Current Liabilities will increase by the sameamount). Which ratio will NOT beaffected?
a) Current Ratio
b) Return on Assets
c) Equity Multiplier
d) Return on Equity
10. Suppose firm A usesaccelerated depreciation while firm B uses straight-line depreciation. Thusfirm A has higher depreciation expenses (but lower values for Fixed Assets).Firm A will show a _________.
a. HigherCurrent Ratio
b. LowerPrice to Earnings Ratio
c. HigherFixed Asset Turnover
d. LowerFree Cash Flow
11. Which of these statements isFALSE?
a. Allfirms have to follow the same rules under GAAP
b. Firmsmight window dress in order to make their statements look better
c. Somefirms might use Off Balance Sheet forms of financing
d. Balance sheets report the book value ofassets
12. Which ofthe following factors is most likely to lead to an increase inadditional funds needed (AFN)?
a. The companyexpects a sharp increase in its forecasted sales.
b. The companyhas warehouses full of inventory ready to be sold.
c. The companyreduces its dividend payout ratio.
d. The companydiscovers that it has excess capacity in its fixed assets.
13. Whichof the following is NOTone of the steps taken in the financial planning process?
a. Assumptionsare made about future levels of sales, costs, and interest rates for use in theforecast.
b. Projectedratios are calculated and analyzed.
c. Develop aset of projected financial statements.
d. Consult withkey competitors about the optimal set of prices to charge, i.e., the pricesthat will maximize profits for our firm and its competitors.
Questions 14-19involves the spreadsheet posted on Moodle called 4200 HW1 Spreadsheet. The onlynumbers you need to change are highlighted in RED. DO NOT CHANGE ANY OTHERNUMBERS.
14. Type in .75 in the RedCell for Total Liabilities / Total Assets. What level of FA/Revenues maximizesthe stock price estimate and what is the stock price estimate (cell B89)?
a. FA / Rev = .475; Stock Price = $45.81
b. FA / Rev = .5; Stock Price = $38.76
c. FA / Rev = .525; Stock Price = $41.53
d. FA / Rev = .55; Stock Price = $37.39
15. Type in .5 in the Red Cell for FA / Rev. What level of TotalLiabilities / Total Assets maximizes the stock price estimate and what is the stockprice estimate?
a. TL / TA = .7; Stock Price = $34.58
b. TL / TA = .725; Stock Price = $41.53
c. TL / TA = .75; Stock Price = $38.76
d. TL / TA = .775; Stock Price = $39.02
16. Which combination of FA / Rev and TL / TAmaximizes stock price estimate?
a. FA / Rev = .525; TL / TA = .75
b. FA / Rev = .5; TL / TA = .75
c. FA / Rev = .5; TL / TA = .775
d. FA / Rev = .525; TL / TA = .775
17. Whathappens to the firm’s estimated growth rate as FA / Rev is increased?
a. It rises
b. It Falls
c. It stays the same
d. It depends
18. Whathappens to the firm’s required return as Total Liabilities / Total Assets isincreased?
a. It rises
b. It Falls
c. It stays the same
d. It depends
19. Whathappens to the firm’s COGS/Rev as FA / Rev is increased?
a. It rises
b. It Falls
c. It stays the same
d. It depends
20. Just put A.
Questions 21-25 use the following Financial statements. Assumethat COGS is always 70% of Sales, Interest Expense is always 10% of theprevious years long term debt, Depreciation is always 20% of the previous yearsNet Fixed Assets, and taxes are always 40% of EBT.
2012 2013 2014 2015
Net Working Capital 1000 1000 1200 1300
Net Fixed Assets 1500 1600
Long Term Debt 2000 2040 2644
Total Equity 500 460 440 436
2012 2013 2014 2015
Sales xxx 2000 3500
COGS xxx 1400 2450
Depreciation xxx 300 300 320
EBIT xxx 300 730
Interest xxx 204 236
EBT xxx 494
Taxes xxx 120 198
NI xxx 296
Capital Expenditures 400 500
Dividends 100 200 300
You do not have to answereach question in order. Fill out the chart above first and then answer thequestions. You do NOT need to try to figure out the 2010 Income Statement.There may be more than one way to find the answers
Choose the answer that isCLOSEST to the correct answer.
21. What is 2014 Sales?
a.1820 b.2112 c. 2360 d. 2680
22. What is Return on Equity in 2013?
a. 6% b.9% c. 13% d. 17%
23. What is Additional Financing Needed in 2015?
a.176 b. 240 c.284 d.324
24.What is Capital Expenditures in 2013?
a. 100 b. 200 c.300 d.400
25.What is the Fixed Asset Turnover in 2015?
a. 1.5 b. 2 c. 2.5 d. 3
