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Full file at caite.info Edition-Ehrhardt-Test-Bank CHAPTER 2—FINANCIAL STATEMENTS, CASH. As part of its comprehensive product package, Ehrhardt/Brigham's CORPORATE FINANCE: A FOCUSED APPROACH 5E includes CengageNOW and the. focused approach 5th edition, but end up in harmful downloads. corporate finance a focused approach 5th edition is available in our digital library an Download corporate finance a focused approach in PDF and ePub Formats for free.
Total net operating capital is equal to net fixed assets. If th e market valu e of d ebt is close to the book value of debt, then MV A is market value of equit y mi nus book value of equit y. How much net operating working capital does the firm have? Investors did not get the return the y requir e. The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission SEC. Free cash flow KEY: EVA stands for economic value added, and it is defined as follows:
Protesters demonstrate against Asia Bibi's acquittal, holding a poster showing a noose around her neck, 2 November Image copyrightEPA. The husband of a Pakistani Christian woman acquitted of blasphemy after eight years on death row has pleaded for asylum from the UK, US or Canada.
The Supreme Court overturned Asia Bibi's conviction on Wednesday, saying the case against her was based on flimsy evidence. Her acquittal sparked violent protests, and the government has now agreed to try to stop her leaving the country. Asia Noreen - commonly known as Asia Bibi - was convicted in of insulting the Prophet Muhammad during a row with neighbours. He also called on Canadian and US leaders for help. Earlier, in an interview with German broadcaster DW, he said he and his family were "frightened" after Pakistan's authorities struck a deal with the hardline Tehreek-i-Labaik TLP party in order to end protests over Asia Bibi's acquittal.
The government will also not prevent protesters legally challenging the Supreme Court decision to release her.
We have no security and are hiding here and there, frequently changing our location. He added: She has spent 10 years in jail. My daughters were dying to see her free, but now this review petition will prolong her plight. Violence against minorities is unacceptable. The treatment of Asia Bibi is vile. ImranKhanPTI has a decision to make: Time for leadership, Imran. AsiaBibiCase Pakistan. He described the government's deal with the protesters as "firefighting", saying it helped to "resolve the situation without resorting to violence".
What was Asia Bibi accused of? They were harvesting fruit when a row broke out about a bucket of water. The women said that because she had used a cup, they could no longer touch it, as her faith had made it unclean.
Prosecutors alleged that in the row which followed, the women said Asia Bibi should convert to Islam and that she made offensive comments about the Prophet Muhammad in response. She was later beaten up at her home, during which her accusers say she confessed to blasphemy. She was arrested after a police investigation. In Wednesday's ruling, the Supreme Court said that the case was based on unreliable evidence and her confession was delivered in front of a crowd "threatening to kill her".
Islam is Pakistan's national religion and underpins its legal system.
Public support for the strict blasphemy laws is strong. Hard-line politicians have often backed severe punishments, partly as a way of shoring up their support base. But critics say the laws have often been used to get revenge after personal disputes, and that convictions are based on thin evidence. The vast majority of those convicted are Muslims or members of the Ahmadi community, but since the s scores of Christians have been convicted.
They make up just 1. The Christian community has been targeted by numerous attacks in recent years, leaving many feeling vulnerable to a climate of intolerance. People line up to cast their ballots for or against the independence of New Caledonia, November 4, in Noumea. The BBC is not responsible for the content of external sites. Read about our approach to external linking.
The relationship between pop stars and animals is preposterously cute. Their social media accounts are often densely showered with adorable images of puppies and kittens snuggling up to their famous owners. And that's not counting those pets that are popular enough to have their own Instagram or Twitter feeds. So any real fan will know their favourite singer's pets as well as they know their own.
But do you? Flag for inappropriate content. Related titles. The Unwinding: An Inner History of the New America. The Innovators: Dispatches from Pluto: Lost and Found in the Mississippi Delta. Elon Musk: Team of Rivals: The Political Genius of Abraham Lincoln. Devil in the Grove: The Prize: A Memoir Based on a True Story. This Changes Everything: Capitalism vs. The Climate. The Emperor of All Maladies: A Biography of Cancer. Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends.
Retained earnings are kept in cash or near cash accounts and, thus, these cash accounts, when added together, will always be equal to the firm's total retained earnings. Moderate OBJ: Retained earnings KEY: Comprehension The retained earnings account on the balance sheet does not represent cash.
Rather, it represents part of stockholders' claims against the firm's existing assets. This implies that retained earnings are in fact stockholders' reinvested earnings. In accounting, emphasis is placed on determining net income in accordance with generally accepted accounting principles.
In finance, the primary emphasis is also on net income because that is what investors use to value the firm. However, a secondary financial consideration is cash flow, because cash is needed to operate the business.
Cash flow and net income KEY: To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.
Statement of cash flows KEY: The current cash flow from existing assets is highly relevant to the investor. However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned. Future cash flows KEY: Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible.
This treatment, other things held constant, tends to encourage the use of debt financing by corporations. The time dimension is important in financial statement analysis. The balance sheet shows the firm's financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects changes in the firm's accounts over that period of time.
Financial stmts: The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year. The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of stockholders' equity. The balance sheet gives us a picture of the firm's financial position at a point in time. The income statement gives us a picture of the firm's financial position at a point in time.
The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits. C PTS: Comprehension MSC: Multiple Choice: Conceptual A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. The balance sheet for a given year, say , is designed to give us an idea of what happened to the firm during that year.
The difference between the total assets reported on the balance sheet and the debts reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles GAAP. For most companies, the market value of the stock equals the book value of the stock as reported on the balance sheet. A PTS: Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
The company purchases a new piece of equipment. The company repurchases common stock. The company pays a dividend. The company issues new common stock. The company gives customers more time to pay their bills. D PTS: Which of the following items is NOT included in current assets? Short-term, highly liquid, marketable securities. Accounts receivable. Current assets KEY: Which of the following items cannot be found on a firm's balance sheet under current liabilities?
Accrued payroll taxes. Accounts payable. Short-term notes payable to the bank. Accrued wages. Cost of goods sold.
E PTS: Current liabilities KEY: The income statement for a given year, say , is designed to give us an idea of how much the firm earned during that year. The focal point of the income statement is the cash account, because that account cannot be manipulated by "accounting tricks. The reported income of two otherwise identical firms cannot be manipulated by different accounting procedures provided the firms follow Generally Accepted Accounting Principles GAAP.
The reported income of two otherwise identical firms must be identical if the firms are publicly owned, provided they follow procedures that are permitted by the Securities and Exchange Commission SEC.
Below are the year-end balance sheets for Wolken Enterprises: As of the end of , none of the principal on this debt had been repaid. Assume that the company's sales in and were the same. Wolken increased its short-term bank debt in Wolken issued long-term debt in Wolken issued new common stock in Wolken repurchased some common stock in Wolken had negative net income in Analysis MSC: Dividends could have been paid in , but they would have had to equal the earnings for the year.
If the company lost money in , they must have paid dividends. The company must have had zero net income in The company must have paid out half of its earnings as dividends. The company must have paid no dividends in Below is the common equity section in millions of Fethe Industries' last two year-end balance sheets: The company's net income in was higher than in The company issued common stock in The market price of the company's stock doubled in The company had positive net income in both and , but the company's net income in was lower than it was in The company has more equity than debt on its balance sheet.
B PTS: The more depreciation a firm has in a given year, the higher its EPS, other things held constant.
If a firm is more profitable than average e. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation. Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits. The more depreciation a firm reports, the higher its tax bill, other things held constant.
People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line. Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.
Net cash flow NCF is often defined as follows: Depreciation, amortization, and net cash flow KEY: Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes.
Companies' reported net incomes would decline. Companies' physical stocks of fixed assets would increase. Companies' net cash flows would increase. Companies' cash positions would decline. Changes in depreciation KEY: Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year, even though the cash on its balance sheet increased? The company sold a new issue of bonds.
The company made a large investment in new plant and equipment. The company paid a large dividend. The company had high amortization expenses. Net cash flow KEY: Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation? The company issued new long-term debt.
The company cut its dividend. The company made a large investment in a profitable new plant. The company sold a division and received cash in return. The company issued new common stock. A security analyst obtained the following information from Prestopino Products' financial statements: Prestopino had negative net income in Prestopino had positive net income in , but its income was less than its income.
Prestopino's cash on the balance sheet at the end of must be lower than the cash it had on the balance sheet at the end of Net cash flow and net income KEY: Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance? The company's operating income declined. The company's expenditures on fixed assets declined. The company's cost of goods sold increased.
The company's depreciation and amortization expenses declined. The company's interest expense increased. The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. The statement of cash flows shows where the firm's cash is located; indeed, it provides a listing of all banks and brokerage houses where cash is on deposit.
The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock. In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. In the statement of cash flows, depreciation charges are reported as a use of cash. In the statement of cash flows, a decrease in inventories is reported as a use of cash. For managerial purposes, i. The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed.
These factors have led to the development of information that is focused on cash flows and the operations of individual units. The standard statements provide useful information on the firm's individual operating units, but management needs more information on the firm's overall operations than the standard statements provide. The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.
The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm.
Thus, under GAAP, there is no room for accountants to "adjust" the results to make earnings look better. Modifying acct data for managerial purposes KEY: Net cash flow NCF is defined as follows: Changes in working capital have no effect on free cash flow. Free cash flow FCF is defined as follows: Net cash flow is the same as free cash flow FCF. Depreciation, amortization, and free cash flow KEY: The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.
MVA gives us an idea about how much value a firm's management has added during the last year.
MVA stands for market value added, and it is defined as follows: EVA stands for economic value added, and it is defined as follows: EVA gives us an idea about how much value a firm's management has added over the firm's life. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible.
Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock.
Both of these costs are deductible from income when calculating income for tax purposes. Federal income tax system KEY: The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes. Thus, the federal government receives no tax revenue from these businesses. All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code.
Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm's income as personal income and pay taxes on that income.
Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes.
Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the income and stockholders were taxed again on the income when it was paid to them as dividends.
Danielle's Sushi Shop last year had 1 a negative net cash flow from operations, 2 a negative free cash flow, and 3 an increase in cash as reported on its balance sheet.
The company had a sharp increase in its depreciation and amortization expenses. The company had a sharp increase in its inventories. The company had a sharp increase in its accrued liabilities. The company sold a new issue of common stock. The company made a large capital investment early in the year.