Question : 41.When calculating a firm’s free cash flow from earnings before : 1325647

41.When calculating a firm’s free cash flow from earnings before interest and taxes we must add back depreciation, amortization and depletion expense and allowances because

a.they are non-cash expenditures.

b.the accounting method for reporting such expenses may be different from that reported to the taxing authority.

c.they approximate the value of fixed asset purchases during the year.

d.they are unrelated to the amount of taxes paid during the year.

42.When calculating the dollar amount of fixed assets purchased during the year what information is required? Assume that no fixed assets were disposed of during the year.

a.the current and prior year’s gross fixed assets

b.the current and prior year’s net fixed assets

c.the current and prior year’s net fixed assets plus the firm’s depreciation expense for the year.

d.either a or c will suffice

Cold Weather Sports, Inc. (CWS)

Cold Weather Sports, Inc. (CWS) just completed its 2003 fiscal year. During the year, CWS had sales of $10,000 and total expenses (no interest expenses were incurred) of $6,000. Assume that CWS pays 30% of its EBIT in taxes and that depreciation expense of $1,200 is included in the total expense number listed above. A list of some balance sheet items for CWS for end of fiscal year 2002 and 2003 is as below.

2002

Current Assets$1,000

Net Long-Term Assets5,000

Accounts Payable600

Accrued Expenses500

Short-Term Debt2,000

Long-Term Debt3,000

2003

Current Assets$1,200

Net Long-Term Assets5,600

Accounts Payable800

Accrued Expenses600

Short-Term Debt2,100

Long-Term Debt3,200

No fixed assets were disposed of during the year.

43.What is Cold Weather Sports’ operating cash flow for 2003?

a.$2,400

b.$2,800

c.$4,000

d.none of the above

44.What was the dollar amount of fixed assets purchased during the year for Cold Weather Sports?

a.$600

b.$1,200

c.$1,800

d.none of the above

45.What is the amount of free cash flow generated by Cold Weather Sports in 2003?

a.$100

b.$2,100

c.$2,300

d.none of the above

46.The effect of an increase in a firm’s accounts payable during the year, assuming that the current asset portion of the balance sheet remains the same, is

a.an outflow of cash.

b.an inflow of cash.

c.neither an inflow nor an outflow of cash.

d.a decrease in the equity of the firm.

47.Granny’s Jug Herbal Shop has total current liabilities of $2,000 and an inventory of $1,000. If its current ratio is 2.5, then what is its quick ratio?

a.2.0

b.2.5

c.3.0

d.3.5

48.Wunder Boy Bat Co. has an average age of inventory equal to 121.67 days. If its end of year inventory level is $4,000, then what does that imply for the cost of goods sold during the year? (round to the nearest dollar)

a.$1,333

b.$3,000

c.$12,000

d.$16,000

49.The firm that you work for had credit sales of $3,500,000 last year and on average had $33,000 in its accounts receivable during the year. What is its average collection period?

a.3 days

b.3.44 days

c.3.5 days

d.none of the above

50.In general, the more debt a firm uses in relation to its total assets

a.the less risk there is to the equity holders of the firm.

b.the less financial leverage it uses.

c.the greater the financial leverage it uses.

d.the greater extent to which it uses equity.