Balances as of Year Ended 31 December 2004 2005

Retained earnings 120 145

Accounts receivable 38 43

Inventory 45 48

Accounts payable 36 29

The company declared and paid cash dividends of $10 million in 2005 and recorded

depreciation expense in the amount of $25 million for 2005. The company ’ s 2005 cash

fl ow from operations ($ millions) was closest to

A. 25.

B. 35.

C. 45.

16. Silverago Incorporated, an international metals company, reported a loss on the sale of

equipment of $2 million. In addition, the company ’ s income statement shows depreciation

expense of $8 million and the cash fl ow statement shows capital expenditure of $10

million, all of which was for the purchase of new equipment. Using the following information

from the comparative balance sheets, how much cash did the company receive

from the equipment sale?

Balance Sheet Item 12/31/2005 12/31/2006 Change

Equipment $100 million $105 million $5 million

Accumulated depreciation — equipment $40 million $46 million $6 million

A. $6 million

B. $5 million

C. $1 million

17. Jaderong Plinkett Stores reported net income of $25 million, which equals the company

’ s comprehensive income. The company has no outstanding debt. Using the following

information from the comparative balance sheets ($ millions), what should the company

report in the fi nancing section of the statement of cash fl ows?

Balance Sheet Item 12/31/2005 12/31/2006 Change

Common stock $100 $102 $2

Additional paid - in capital

common stock $100 $140 $40

Retained earnings $100 $115 $15

Total stockholders ’ equity $300 $357 $57

A. Issuance of common stock $42 million; dividends paid of $10 million

B. Issuance of common stock $38 million; dividends paid of $10 million

C. Issuance of common stock $42 million; dividends paid of $40 million

18. Based on the following information for Pinkerly Inc., what are the total net adjustments

that the company would make to net income in order to derive operating cash fl ow?

Year Ended

Income Statement Item

Net income

Depreciation

12/31/2006

$20 million

$2 million

Balance Sheet Item 12/31/2005 12/31/2006 Change

Accounts receivable $25 million $22 million ($3

million)

Inventory $10 million $14 million $4 million

Accounts payable $8 million $13 million $5 million

A. Add $6 million

B. Add $8 million

C. Subtract $6 million

19. The fi rst step in evaluating the cash fl ow statement should be to examine

A. individual investing cash fl ow items.

B. individual fi nancing cash fl ow items.

C. the major sources and uses of cash.

20. Which of the following would be valid conclusions from an analysis of the cash fl ow

statement for Telef ó nica Group presented in Exhibit 6 - 3 in the chapter?

A. The company does not pay dividends.

B. The primary use of cash is fi nancing activities.

C. The primary source of cash is operating activities.

21. Which is an appropriate method of preparing a common - size cash fl ow statement?

A. Begin with net income and show the items that reconcile net income and operating

cash fl ows.

B. Show each line item on the cash fl ow statement as a percentage of net revenue.

C. Show each line item on the cash fl ow statement as a percentage of total cash

outfl ows.

22. Which of the following is an appropriate method of computing free cash fl ow to the fi rm?

A. Add operating cash fl ows plus capital expenditures and deduct after - tax interest

payments.

Date: 2016-03-03; view: 802