Fin 350 Mini Test 1 Chapter 2 a-Z

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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?

        16.8%


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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