Answer Choices:
a. True
b. False
Answer:
a. True
Question: Assume that Besley Golf Equipment commenced operations on January 1, 2014, and it was granted permission to use the same depreciation calculations for stockholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2014 management realized that the assets would last for only 10 years. The firm’s accountants plan to report the 2014 financial statements based on this new information. How would the new depreciation assumption affect the company’s financial statements?
Answer:
Options:
Question: The amount shown on the December 31, 2015, balance sheet as “retained earnings” is equal to the firm’s net income for 2015 minus any dividends it paid.
Answer:
Options:
Question: Which of the following statements is CORRECT?
Answer Choices:
a. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
b. If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
c. The cash flows for an annuity due must all occur at the beginning of the periods.
d. The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.
e. If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.
Answer:
c. The cash flows for an annuity due must all occur at the beginning of the periods.
Question: When a loan is amortized, a relatively low percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment’s percentage increases in the loan’s later years.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: All other things held constant, the present value of a given annual annuity decreases as the number of periods per year increases.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Assume that Besley Golf Equipment Corporation commenced operations on January 1, 2014, and it was granted permission to use the same depreciation calculations for stockholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2014 management realized that the assets would last for only 10 years. The firm’s accountants plan to report the 2014 financial statements based on this new information. How would the new depreciation assumption affect the company’s financial statements?
Answer:
Options:
Question: Last year, Delip Industries had (1) negative cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation?
Answer Choices:
a. The company had a sharp increase in its inventories.
b. The company had a sharp increase in its accrued liabilities.
c. The company sold a new issue of common stock.
d. The company made a large capital investment early in the year.
e. The company had a sharp increase in depreciation expenses.
Answer:
c. The company sold a new issue of common stock.
Question: Assume that Congress recently passed a provision that will enable Bev’s Beverages Inc. (BBI) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or the tax rate. Prior to the new provision, BBI’s net income was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BBI’s financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
Answer:
Options:
Question: You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?
Answer Choices:
a. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.
b. The discount rate decreases
.
c. The riskiness of the investment’s cash flows increases.
Answer:
b. The discount rate decreases
Question: Last year, Delip Industries had (1) negative cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation?
Answer:
Options:
Question: You are considering 2 bonds that will be issued tomorrow. Both are rated triple B (BBB, the lowest investment-grade rating), both mature in 20 years, both have a 10% coupon, neither can be called except for sinking fund purposes, and both are offered to you at their $1,000 par values. However, Bond SF has a sinking fund while Bond NSF does not. Under the sinking fund, the company must call and pay off 5% of the bonds at par each year. The yield curve at the time is upward sloping. The bond’s prices, being equal, are probably not in equilibrium, as Bond SF, which has the sinking fund, would generally be expected to have a higher yield than Bond NSF.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: Assume that Congress recently passed a provision that will enable BBI’s Beverages Inc. (BBI) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or the tax rate. Prior to the new provision, BBI’s net income was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BBI’s financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
Answer:
Options:
Question: Companies E and P each reported the same earnings per share (EPS), but Company E’s stock trades at a higher price. Which of the following statements is CORRECT?
Answer:
Options:
Question: Income bonds pay interest only if the issuing company actually earns the indicated interest. Thus, these securities cannot bankrupt a company, and this makes them safer from an investor’s perspective than regular bonds.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: The annual rate of return on any given stock can be found as the stock’s dividend for the year plus the change in the stock’s price during the year, divided by its beginning-of-year price.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: If management operates in a manner designed to maximize the firm’s expected profits for the current year, this will maximize the stockholders’ wealth as of the current year.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: When a loan is amortized, a relatively high percentage of the payment goes to reduce the outstanding principal in the early years, and the principal repayment’s percentage declines in the loan’s later years.
Answer Choices:
a. True
b. False
Answer:
b. False