A firm has a current capital structure consisting of $400,000 of 12 percent annual interest debt and 50,000 shares of common stock. The firm’s tax rate is 40 percent on ordinary income. If the EBIT is expected to be $200,000, the firm’s earnings per share will be ________. A) $2.40 B) $3.04 C) $7.04 D) […]
Date: September 19th, 2020
Which is NOT true of depreciation as found in the pro forma statement? A) Depreciation, unlike sales, tends to go down each year with the Modified Asset Cost Recovery System (MACRS). B) Unless there is a change to investments in plant, property and equipment increasing the depreciation line item, using the same percentage as that […]
Date: September 19th, 2020
Which of the below does a pro forma statement tell us? A) For every sales dollar, it tells us what percentage went to produce the product. B) For every dollar in cost, it tells us what percentage ends up as net income. C) For every sales dollar, it tells us how much shareholders received in […]
Date: September 19th, 2020
To estimate the firm’s potential performance for the coming year, we typically start with the sales forecast from the ________ and prepare a pro forma income statement using the percentages of the ________ for each category. A) finance department; prior year B) marketing department; prior year C) marketing department; next year D) sales department; current […]
Date: September 19th, 2020
When developing a pro forma income statement, depreciation, unlike sales, tends to ________ each year with the Modified Asset Cost Recovery System (MACRS). A) go up B) remain the same C) increase exponentially D) go down ANSWER Answer: D
Date: September 19th, 2020
As applied to the pro forma balance sheet, which of the statements below is FALSE? A) The company looks at the prior year’s balance sheet and finds each line’s percentage of total assets. B) The company forecasts the coming year’s total assets based on expected changes such as the completion of capital projects, desired levels […]
Date: September 19th, 2020
A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a/an ________. A) decrease of 30 days in the cash conversion cycle B) increase of 15 days in the cash conversion cycle C) decrease of 15 days in the […]
Date: September 19th, 2020
In the EBIT-EPS approach to capital structure, a constant level of EBIT is assumed ________. A) to ease the calculations of owners’ equity B) to isolate the impact on returns of the financing costs associated with alternative capital structures C) to emphasize the relationship between interest expenses and taxes D) to concentrate on the effect […]
Date: September 19th, 2020
If the company has some fixed costs, as sales increase then a/an ________ of sales dollars flows to the bottom line if these costs are truly fixed and do not vary with production or sales. A) lower percentage B) higher percentage C) equal percentage D) much lower percentage ANSWER Answer: B
Date: September 19th, 2020
An aspect of short-term financial planning is forecasting operating cash flow and ultimately the profitability of the company in the coming period. This type of financial planning typically uses forecasted ________. A) earnings B) income statements C) working capital statements D) All of these ANSWER Answer: B Explanation: B) An aspect of short-term […]
Date: September 19th, 2020
