FIN 3400 Study guides, Class notes & Summaries

CHAPTER 14--TAXES ON THE FINANCIAL STATEMENTSCHAPTER 14--TAXES ON THE FINANCIAL STATEMENTS Student: ___________________________________________________________________________ 1. If a corporation has no subsidiaries outside the U.S., its book and taxable income are identical. True False 2. Only U.S. corporations are included in a combined GAAP financial statement. True False 3. Foreign entities owned at least 80% by the parent are included in a consolidated group’s U.S. tax return. Tru...

1. If a corporation has no subsidiaries outside the U.S., its book and taxable income are identical. True False 2. Only U.S. corporations are included in a combined GAAP financial statement. True False 3. Foreign entities owned at least 80% by the parent are included in a consolidated group’s U.S. tax return. True False 4. Giant uses the “equity method” to account for the operations of its 40% owned subsidiary Little. A portion of Little’s profits for the year are included in Gian...

FIN 3400 Ch 8 SMARTBOOK - Complete Solutions (Verified) Assume you are computing P0, which is the current price of a stock. What discount factor will you use to discount the dividend in year 3? (1 + i)^3 Which one of these defines the current value of a stock? Discounted value of both the future dividends and the future stock price What is the disadvantage of a market order? The execution price is unknown in advance. A stock is expected to pay a dividend of $2 in year 2, $3 in year 3, and sell ...

FIN 3400 Ch 14 SMARTBOOK - Complete Solutions (Verified) Which entities issue commercial paper? Select all that apply. Medium-to-large corporations Large banks A banker's acceptance (B.A.) has which one of these characteristics? Low risk Rationale: A banker's acceptance carries a bank guarantee which makes it low-risk. Which term refers to a firm's need to keep cash on hand to pay normal expenses such as utilities and wages? Transaction facilitation Which of these correctly describe the Baum...

FIN 3400 Ch 12 SMARTBOOK - Complete Solutions (Verified) In 4 years, an existing machine will have a zero book value and a market value of $4,200. A new machine costing $26,400 can replace this machine, lower variable costs by $8,200 a year, and have a market value of $13,300 and a zero book value in 4 years. The incremental depreciation is $5,300. The tax rate is 35%. What is the operating cash flow for year 4? $7,185 Rationale: OCF = ($8,200 - $5,300)(1 - 0.35) + $5,300 = $7,185 A firm purchas...

FIN 3400 Ch 11 SMARTBOOK - Complete Solutions (Verified) How can business risk be defined? Variability of a firm's cash flows What value is being sought from other firms when the pure-play approach is used for a new project? Beta Rationale: Beta is the value sought as it provides a measure of market risk comparable to the project. A firm has an overall beta of 1.12 and a proxy project beta of 1.49. The risk-free rate is 3 percent and the firm's cost of equity is 11.96 percent. What is the pro...

FIN 3400 Ch 10 SMARTBOOK - Complete Solutions (Verified) In the CAPM formula, what does the symbol RM stand for? Market rate of return If you buy a stock with a beta of 1.43 when the risk-free rate is 2.4 percent and the market rate is 8.7 percent, what is your expected rate of return? 11.41 percent Rationale: E(R) = 0.024 + 1.43(0.087 - 0.024) = 0.1141 = 11.41% If a stock has more market risk than the market portfolio and is overpriced, where will it plot on a security market line graph? To the...

FIN 3400 Chapter 14 Assignment Questions and Answers- Florida International University Select all that apply Which of these can cause a firm to incur shortage costs? Select all that apply. Multiple select question. Granting too little credit to customers Being out of an inventory item Borrowing too much from suppliers Having too little cash on hand A firm should try to equal the marginal benefit of each dollar invested in net working capital with which one of these? Multiple choice que...

FIN 3400 Chapter 12 Assignment Questions and Answers- Florida International University What is pro forma analysis? Multiple choice question. Comparing the financial statements from one time period to another Ascertaining how an action would affect a firm's taxes Reviewing historical data to determine trends Estimation of future project cash flows using only the relevant parts of the financial statements What is an incremental cash flow? Multiple choice question. A cash flow that incre...

FIN 3400 Chapter 10 Assignment Questions and Answers- Florida International University Select all that apply Which of the following will decrease the risk level of a firm? Select all that apply. Multiple select question. Selling the lowest-risk division Accepting riskier projects Accepting a low-risk project Acquiring a less risky firm Which one of these best illustrates a probability distribution at it relates to next year's economy? Multiple choice question. 15 percent chance of a b...