Deck 4: Measuring Financial Performance

Question 1

Long-term,non-cancelable leases whereby the owner receives payments that cover the cost of the equipment plus a return on investment in the equipment is known as a capital lease.

Answer 1

True

Question 2

On the balance sheet,Total Liabilities = Total Assets - Owners Equity.

Answer 2

True

Question 3

Cash or other assets that are expected to be converted into cash in less than one year are known as current liabilities.

Answer 3

False

Question 4

The reduction in value of a fixed asset over its expected life intended to reflect the usage or wearing out of the asset is called accumulated depreciation.

Question 5

The balance sheet equation is: Total Assets = Total Liabilities + Net Income.

Question 6

Net cash build occurs when the sum of cash flows from operations and investing is negative.

Question 7

Assets are financial and physical items controlled or owned by the business.

Question 8

How quickly an asset can be converted into cash is called liability.

Question 9

During the startup stage in a new venture's life cycle,the income statement typically shows no sales but expenses including the production and market of products or services.

Question 10

Accrual accounting is the practice of recording economic activity when recognized rather than waiting until realized.

Question 11

Amounts owed to another for purchase made on credit which come due in less than one year are known as receivables.

Question 12

GAAP stands for "Generally Accepted Accounting Principles."

Question 13

GAAP stands for "General American Accounting Principles."

Question 14

Net cash burn occurs when the sum of cash flows from operations and investing is positive.

Question 15

Production assets (e.g. ,inventories and equipment to produce products and give credit to customers)usually occurs during the development stage in a new venture's life cycle.

Question 16

During the development stage in a new venture's life cycle,the income statement typically shows no sales but expenses such as rent,utilities,and a subsistence salary for the entrepreneur.

Question 17

The practice of recording economic activity when realized is known as accrual accounting.

Question 18

During the development stage in a new venture's life cycle,the balance sheet reflects the acquisition of initial assets and the obtaining of seed financing.

Question 19

Net income,or profit,is the bottom line measure of what's left from the firm's net sales after operating expenses,financing costs,and taxes have been deducted.

Question 20

Operating income,or earnings before interest and taxes,reflects the firm's profits after all operating expenses,excluding financing costs,have been deducted from net sales.

Question 21

"Retained earnings" is:

A)a corporate asset
B)part of owners equity
C)neither a or b
D)both a and b

Question 22

Which of the following is a use of cash?

A)a decrease in inventory
B)an increase in accrued liabilities
C)the sale of an asset for a gain
D)a drop in the amount owed on a bond
E)an increase in stock issued

Question 23

Which of the following is not a characteristic of inventories?

A)raw materials
B)finished products
C)goods sold but not yet shipped
D)work-in-process

Question 24

EBDAT is earnings before interest,taxes,depreciation,and amortization.

Question 25

Cash includes all of the following except:

A)coins
B)currency
C)checking accounts
D)certificates of deposit

Question 26

Financial statement that provides a snapshot of a business' financial position as of a specific date is called the:

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 27

Which of the following is not depreciated?

A)inventory
B)machinery
C)land
D)both a and b
E)both a and c

Question 28

"Variable expenses" are costs or expenses that vary directly with revenues.

Question 29

EBDAT stands for "Earnings Before Depreciation And Taxes".
T 29.Cash fixed costs = survival revenues - variable cost revenue ratio × survival revenues.

Question 30

Seed financing (e.g. ,financing from the entrepreneur's assets,family,and friends)usually occurs during the development stage in a new venture's life cycle.

Question 31

Financial statement that shows how cash,as reflected in accrual accounting,flows into and out of a company during a specific period of operation is called the:

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 32

Which one of the following is not considered to be a current asset?

A)cash
B)receivables
C)inventories
D)fixed assets

Question 33

Which of the following is a source of cash?

A)an increase in accounts receivable
B)a decrease in wages payable
C)the acquisition of land
D)an increasein the amount owed on a note payable
E)the repurchase of outstanding shares of stock

Question 34

"Variable expenses" are costs that are expected to remain constant over a range of revenues for a specific time period.

Question 35

Which of the following is not a characteristic of marketable securities?

A)short-term
B)illiquid
C)high-quality
D)interest-bearing

Question 36

The balance sheet equation states that total assets =

A)total liabilities + depreciation
B)total liabilities + owners' equity
C)owners' equity + net income
D)owners' equity + current liabilities
E)total liabilities + net income

Question 37

Financial statement that reports the revenues generated and expenses incurred over an accounting period is called the

A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows

Question 38

"Cost of goods sold" is the cost of materials,labor,and advertising incurred to produce the products that were sold.

Question 39

Startup financing (e.g. ,financing from business angels and venture capitalists)usually occurs during the development stage in a new venture's life cycle.

Question 40

"Contribution profit margin" is the portion of the sale of a product that contributes to covering the cash fixed costs.

Question 41

A lease that provides maintenance in addition to financing and is also usually cancelable is called:

A)capital lease
B)liability lease
C)operating lease
D)asset lease
E)equity lease

Question 42

Your venture has total assets of $690,net fixed assets of $500,long term debt of $80,and stockholders' equity of $400.What is the amount of your venture's current liabilities?

A)-$100
B)$100
C)$210
D)$290
E)$1,090

Question 43

Find the "contribution profit margin" based on the following information:cash fixed costs = $60,000;variable costs = $70,000;and sales = $100,000.

A)70%
B)60%
C)30%
D)40%
E)100%

Question 44

Acme Pest Control has sales of $13,500,cost of goods sold of $4,000,selling expenses of $3,500,depreciation of $2,000,interest expense of $2,000,and a tax rate of 34%.
What is Acme's taxable income and tax expense?

A)$6,000;$2,040
B)$2,000;$1,320
C)$4,000;$1,360
D)$2,000;$680
E)$9,500;$3,230

Question 45

"Gross earnings" is equal to:

A)Revenue - After-Tax cost of financial capital used
B)net income ÷ sales
C)(net sales - the cost of production)× tax rate
D)net sales - the cost of production

Question 46

According to Appendix A of Chapter 4,NOPAT is defined as:

A)revenues times (1 + tax rate)
B)revenues times (1 - tax rate)
C)EBITDA times (1 - tax rate)
D)EBIT times (1 - tax rate)
E)net income times (1 + tax rate)

Question 47

Which one of the following is not considered to be an internal operating schedule?

A)income statement
B)cost of production schedule
C)cost of goods sold schedule
D)inventories schedule

Question 48

EBDAT is equal to:

A)revenues - variable costs - cash fixed costs
B)revenues + variable costs + cash fixed costs
C)revenues - variables costs - total fixed costs
D)revenues + variable costs - cash fixed costs

Question 49

In breakeven analysis,solving for when EBITDA is equal to zero gives breakeven in terms of:

A)economic revenues
B)variable costs
C)survival revenues
D)fixed costs

Question 50

Acme Pest Control has sales of $13,500,cost of goods sold of $4,000,selling expenses of $3,500,depreciation of $2,000,interest expense of $2,000,and a tax rate of 34%.
What is Acme's operating income?

A)$4,000
B)$2,000
C)$9,500
D)$6,000
E)$1,320

Question 51

What is the survival revenues breakeven based on: cash fixed costs = $400,000 and a variable cost revenue ratio = .65?

A)$460,500
B)$615,385
C)$1,142,857
D)$2,000,334
E)$4,000,667

Question 52

Which of the following is not a category on the statement of cash flows?

A)cash flow from operating activities
B)cash flow from equity activities
C)cash flow from investing activities
D)cash flow from financing activities

Question 53

"Net cash burn" occurs when the sum of which of the following items is negative?

A)cash flows from operations and financing
B)cash flows from investing and financing
C)cash flows from operations and investing
D)cash flows from net income and depreciation
E)cash flows from operations and net income

Question 54

Expenses or costs that vary directly with revenues are said to be:

A)fixed expenses
B)semi-fixed expenses
C)semi-variable expenses
D)variable expenses

Question 55

A firm with constant variable costs has a survival revenue breakeven of $375,000.This year it had $250,000 in sales,$100,000 of which was a fixed cost.What are the firm's cash fixed costs?

A)$150,000
B)$225,000
C)$625,000
D)$937,500

Question 56

Last year a firm had sales of $200,000.Its cost of goods sold was $75,000,and administrative and marketing expenses were $25,000 each.Depreciation expense was $10,000,while interest expense was $15,000.If the tas rate is 30%,what was the firm's NOPAT last year?

A)$19,500
B)$35,000
C)$45,500
D)$52,500
E)$80,500

Question 57

Use the following information to determine the cash fixed costs: Administrative expenses = $200,000;Marketing expenses = $180,000;Depreciation expenses = $100,000;and Interest expenses = $20,000.

A)$380,000
B)$400,000
C)$480,000
D)$500,000
E)$620,000

Question 58

Acme Pest Control has sales of $13,500,cost of goods sold of $4,000,selling expenses of $3,500,depreciation of $2,000,interest expense of $2,000,and a tax rate of 34%.
What is Acme's net income?

A)$2,720
B)$897.60
C)$6,460
D)$2,040
E)$1,320

Question 59

Find the "survival revenues" (SR),also known as the EBDAT breakeven)based on the following information:cash fixed costs = $60,000;variable costs = $70,000;and sales = $100,000.

A)$85,714
B)$100,000
C)$116,667
D)$200,000
E)$300,000

Question 60

What is the survival revenues breakeven based on the following: Administrative expenses = $200,000;Marketing expenses = $180,000;Depreciation expenses = $100,000;and Interest expenses = $20,000;and a variable cost revenue ratio = .50?

A)$400,000
B)$600,000
C)$800,000
D)$1,000,000
E)$1,200,000

Question 61

"Economic value added" (EVA)measures a firm's market value added over a specified time period.

Question 62

Find the NOPAT breakeven revenues (NR)given the following information:total operating fixed costs = $75,000;variable costs = $150,000;and sales = $200,000.

A)$100,000
B)$240,000
C)$300,000
D)$400,000
E)$460,000

Question 63

In its first year,Joe's Start-Up Company had revenues of $125,000 and cost of goods sold of $81,250,which was the only variable cost.Depreciation was $20,000,and cash costs were $5,000 in financing costs,admin expenses of $50,000,and $45,000 in marketing expenses - all of which were fixed.What is the survival breakeven revenue?

A)$342,857
B)$285,714
C)$271,429
D)$184,615
E)$153,846

Question 64

Last year,Beth's Baked Goods exactly broke even with cash fixed costs of $63,000.If its breakeven survival revenue level was $94,000,what was its variable cost revenue ratio (VCRR)?

A).27
B).30
C).33
D).67

Question 65

A firm's net operating profit after taxes (NOPAT)is calculated as:

A)net profit
B)EBIT times one minus the tax rate
C)EBT minus interest paid
D)EBIT times the tax rate

Question 66

Find the NOPAT given the following information:sales = $520,000,earnings before interest = $100,000;interest = $20,000;and the tax rate = 30%.

A)$70,000
B)$56,000
C)$30,000
D)$24,000
E)$10,000

Question 67

Determine the total operating fixed costs (TOFC)based on the following: Administrative expenses = $200,000;Marketing expenses = $180,000;Depreciation expenses = $100,000;and Interest expenses = $20,000.

A)$200,000
B)$380,000
C)$400,000
D)$480,000
E)$500,000

Question 68

Economic Value Added (EVA)is calculated as:

A)NOPAT plus after-tax dollar cost of financial capital used
B)ROE minus percentage cost of financial capital
C)NOPAT minus after-tax dollar cost of financial capital used
D)ROE plus the percentage cost of financial capital