Finance 550 - 9571 Words

Practice Exam Questions and Answers 1. The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co. today for $2 million. The Widget Co.s current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the Widget Co.s assets today is _____ and the market value of those assets is _____. A. $4,600,000; $3,900,000 B. $4,600,000; $3,125,000 C. $5,000,000; $3,125,000 D. $5,000,000; $3,900,000 E. $6,500,000; $3,900,000 Book value = ($725,000 + $1,375,000) + $2,500,000 = $4,600,000 Market value = $1,900,000†¦show more content†¦good reputation of the company C. equipment owned by the firm D. money due from a customer E. an item held by the firm for future sale Refer to section 2.1 AACSB: N/A Blooms: Comprehension Difficulty: Intermediate Learning Objective: 2-2 and 2-4 Ross - Chapter 02 #15 Section: 2.2 and 2.4 Topic: Depreciation 10. Which one of the following statements concerning net working capital is correct? A. The lower the value of net working capital the greater the ability of a firm to meet its current obligations. B. An increase in net working capital must also increase current assets. C. Net working capital increases when inventory is sold for cash at a profit. D. Firms with equal amounts of net working capital are also equally liquid. E. Net working capital is a part of the operating cash flow. Refer to section 2.1 AACSB: N/A Blooms: Comprehension Difficulty: Intermediate Learning Objective: 2-2 and 2-4 Ross - Chapter 02 #19 Section: 2.2 and 2.4 Topic: Income statement 11. The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable. Refer to section 2.1 AACSB: N/A Blooms: Knowledge Difficulty: Basic Learning Objective: 2-4 Ross - Chapter 02 #24 Section: 2.4 Topic: Cash flow fromShow MoreRelatedEssay Mt480 Corporate Finance Unit 9 Project1159 Words   |  5 PagesStudent MT480-01: Corporate Finance Unit Nine: Assignment Date Assignment: Complete the following exercises and problems from the textbook. 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