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COB 300B Finance Exam | Questions and Answers Verified 100% Correct
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COB 300B Finance Exam | Questions and Answers Verified 100% Correct
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COB 300B Finance Exam | Questions andAnswers Verified 100% Correct
Which of the following items is NOT normally considered a current asset?
a. Accounts receivable.
b. Inventory.
c. Bonds.
d. Cash.
e. Short-term, highly-liquid, marketable securities. - ✔✔C. Bonds
Which of the following items cannot be found on a firm's balance sheet under current
liabilities?
a. Accounts payable.
b. Short-term notes payable to the bank.
c. Accrued wages.
d. COGS.
e. Accrued payroll taxes. - ✔✔D. COGS
Rao Construction recently reported $20.00 million of sales, $12.60 million of operating costs
other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds
outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%.
What was Rao's operating income, or EBIT, in millions?
a. $4.27
b. $3.83
c. $3.56
d. $4.40
e. $3.87 - ✔✔D. $4.40
+ Sales
, - Operating costs excluding depreciation
- Depreciation
= Operating Inc
$20 - $12.60 - $3 = $4.40
Vasudevan Inc. recently reported operating income of $5.35 million, depreciation of $1.20
million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating
working capital totaled $0.6 million. How much was its free cash flow, in millions?
a. $3.54
b. $3.05
c. $3.81
d. $3.39
e. $4.57 - ✔✔c. $3.81
EBIT $5.35
Tax Rate 40%
Depreciations $1.20
apex + Change in NOWC $0.60
Which of the following statements is NOT accurate?
A) In finance, we are generally more interested in cash flows than in accounting profits. FCF is
calculated as after-tax operating income + depreciation less than sum of capital expenditures &
changes in net operating working capital.
B) Retaining earnings account on balance sheet doesn't represent cash. Rather, it represents
part of stockholder's claim against firm's existing assets. Put another way retained earnings are
stockholders reinvested earnings
C) FCF is, essentially, cash flow available for interest & dividends after company has made
investments in current & fixed assets that are necessary to sustain ongoing operations
D) If a firm is reporting its income in accordance with generally accepted accounting principles,
then its net income as reported on income statement should be equal to its FCF - ✔✔d
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