Wednesday, November 13, 2019

The Widget Co. purchased new machinery three years ago for $4 million. The machinery can be sold to the Roman Co


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 + $2,000,000 = $3,900,000


87.
Boyer Enterprises had $200,000 in 2011 taxable income. What is the firm's average tax rate based on the rates shown in the following table?

    
 
A. 
28.25 percent

B. 
30.63 percent

C. 
32.48 percent

D. 
36.50 percent

E. 
39.00 percent
Tax = .15($50,000) + .25($25,000) + .34($25,000) + .39($200,000 - $100,000) = $61,250
Average tax rate = $61,250/$200,000 = 30.63 percent



88.
Webster World has sales of $12,900, costs of $5,800, depreciation expense of $1,100, and interest expense of $700. What is the operating cash flow if the tax rate is 32 percent? 
 
A. 
$4,704

B. 
$5,749

C. 
$5,404

D. 
$7,036

E. 
$7,100
Earnings before interest and taxes = $12,900 - $5,800 - $1,100 = $6,000
Taxable income = $6,000 - $700 = $5,300
Tax = .32($5,300) = $1,696
Operating cash flow = $6,000 + $1,100 - $1,696 = $5,404



89.
The Blue Bonnet's 2010 balance sheet showed net fixed assets of $2.2 million, and the 2011 balance sheet showed net fixed assets of $2.6 million. The company's income statement showed a depreciation expense of $900,000. What was the amount of the net capital spending for 2011? 
 
A. 
-$500,000

B. 
$400,000

C. 
$1,300,000

D. 
$1,700,000

E. 
$1,800,000
Net capital spending = $2,600,000 - $2,200,000 + $900,000 = $1,300,000

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