C214 Financial Management
Study Guide Problems
With Solutions
09/06/19
The following questions are for practicing both calculations and concepts for C214 – Financial Management. Some
of the questions have been used in Topic Reviews in the Financial Management e-text. This list of questions does
not cover everything you may encounter in an assessment. They are in the same order as the topics presented in
the e-text. For solutions, please see your Course Instructor.
Overview of Finance
1. Trading on the NYSE is executed without a specialist (i.e. a market maker).
True/False*
2. Stocks and bonds are two types of financial instruments
*True/False
3. When revenue is matched with cost of sales in an income statement it is called:
Matching Principle
4. A high-quality customer just purchased $500,000 worth of product from your
company. The contract calls for immediate delivery of the product with a cash payment
of $300,000 today and $200,000 to be paid 60 days. The expense associated with the
product is $300,000, of which $100,000 has not been paid to your supplier. Under
accrual based accounting system, you will most likely report:
Revenues of ________________ Expenses of ____________________
Revenues 500,000 Expenses 300,000
Income Statement/Balance Sheet
5. A firm reported retained earnings of $300 in 12/31/20x2. For 12/31/20x3, the firm
reports retained earnings of $400 and pays dividends of $25. What was net income in
20x3?
Beg RE = 300, NI = 125, Div = -25, End RE = 400
6. A basic equation for the balance sheet is:
Equity = Assets – Liabilities
7. Why is the Balance Sheet known as a permanent statement?
Because the other statements are reset at the end of the fiscal year
8. How do you calculate the change in Retained Earnings?
Net Income – Dividends
,9. Sales minus Cost of Sales minus other expenses equals what?
Operating Income or EBIT
10.Name four accounts that are part of total assets?
Cash Accounts Receivable, Inventory, Long Term Assets
11. Name three accounts that are part of current assets?
Inventory, Cash, Accounts Receivable, Short Term Investments
12. Name four accounts that are part of Total Liabilities?
Bonds, Accounts Payable, Mortgage
Statement of Cash Flows
13. Intel reported the following for 2014:
Net Income 100,000
Depreciation 20,000
Change in A/R 10,000
What is the cash flow from operating activities?
100 + 20 – 10 = 110
14. Name three accounts that are only included in Cash Flow from Financing (CFF)?
Common Stock, Dividends Paid, Bonds Payable
15.Define the Statement of Cash Flows:
Calculated for the same period of time as the Income Statement
Is calculated based on the Income Statement and the changes in the Balance Sheet
Is one of the three basic accounting statements
16. Intel reported the following for 2014:
Gross Equipment (1/1/14) 50,000
Gross Equipment (12/31/14) 65,000
Net income 100,000
Depreciation 20,000
What is the cash flow from investing activities for 2014?
(15,000) Depreciation is not counted when using Gross PPE
17. What is the Cash Flow from Operations given the following information?
Net Income 450,000
Change in Accounts Receivable 120,000
Change in Inventory - 90,000
Change in PP&E 60,000
Depreciation Expense 110,000
Change in Accounts Payable 50,000
Change in Accrued Expenses - 75,000
, Change in Common Stock 300,000
450 + 110 Depn – 120 + 90 + 50 – 75 = 505,000
18. What is the Cash Flow from Investing?
Increase in Gross PP&E 125,000
Beginning Net PP&E 750,000
Ending Net PP&E 850,000
Depreciation Expense 25,000
Net End 850 less Net Beg 750 plus Depn 25 = 125 Outflow
(125,000)
19. What is the Cash Flow from Investing?
Beginning Net PP&E 250,000
Ending Net PP&E 300,000
Depreciation Expense 40,000
Change in Long Term Investments 100,000
Change in Short Term Investments 50,000
Net End 300 – Net Beg 250 + Depn 40 + LT Investments + 100 = 190 outflow
190,000 outflow
20. What is the Cash Flow from Financing?
Accounts Payable 100,000
Accrued Expenses 50,000
Increase in Mortgage Payable 300,000
Decrease in Bonds Payable 75,000
Dividends Paid 80,000
Inc Mort 300 – Dec Bonds 75 – Div Paid 80 = 145,000
21. When Fixed Assets increase what happens to Cash?
Cash decreases
22. Last year a firm recorded Net PP&E of $4,600 while this year the same firm recorded
Net PP&E of $4,500. If the depreciation expense for last year and this year are $500 and
$800 respectively, what is the CFI of the company? (assume no asset disposals)
PPE End 4500 – PPE Beg 4600 + Curr Yr Depn 800 = 700 increase/outflow
23. Which is the purpose of the statement of cash flows?
Explains the change in cash over the course of the specified timeframe
24. Financial data for Intel is given below for 2014:
EBIT 1,000,000
Depreciation 30,000
Change in working capital (10,000)
Net capital expenditures 15,000
Tax rate 40%
Compute the Free Cash Flow for 2014
FCFF = EBIT (1-t) + Depn – Inc NWC – CapEx
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