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FIN 350 MINI TEST 1 CHAPTER 2
1. A firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000. If the firm pays 8 percent interest on its long-term debt, what interest rate does it pay on its notes payable?
2. A start-up firm is making an initial investment in new plant and equipment. Currently, equipment is depreciated on a straight-line basis over 10 years. Assume that Congress is considering legislation that will allow the corporation to depreciate the equipment over 7 years. If the legislation becomes law, and the firm implements the 7-year depreciation basis, which of the following will occur?
The firm's net cash flow will increase.
3. A stock analyst has acquired the following information for Palmer Products:
Retained earnings on the year-end 2001 balance sheet was $700,000.
Retained earnings on the year-end 2002 balance sheet was $320,000.
The company does not pay dividends.
The company's depreciation expense is its only non-cash expense.
The company has no non-cash revenues.
The company's net cash flow for 2002 was $150,000.
On the basis of this information, which of the following statements is most correct?
Palmer Products had negative net income in 2002.
4. A stock market analyst has forecasted the following year-end numbers for Raedebe Technology:
Sales $70 million
EBITDA $20 million
Depreciation $ 7 million
Amortization $ 0
The company's tax rate is 40 percent. The company does not expect any changes in its net operating working capital. This year the company's planned gross capital expenditures will total $12 million. (Gross capital expenditures represent capital expenditures before deducting depreciation.) What...
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