Corporate finance 1

Chapter 2. OVERVIEW OF FINANCIAL STATEMENTS

1 (E2, p41, Ross). Why is that the revenue and cost figures shown on a standard
income statement may be not representative of actual cash inflows and outflows that
occurred during a period?

2. Why is interest paid not a component of operating cash flow ?

4. (E6, p41, Ross). Suppose a company’s cash flow from assets was negative for a
particular period. Is this necessarily a good sign or bad sign?

5 (E7, p42, ROSS). Suppose a company’s operating cash flow was negative for
several years running. Is this necessarily a good sign or bad sign?

6.(E9. P42,Ross). Could a company’s cash flow to stock-holders be negative in a

given year. Explain how this comes about. What about cash flow to creditors.?

7. (E5, p42, Ross). K.W Company purchased new machinery 3 years ago for $7
million. The machine can be sold to the Romulans today for $ 3.2 million. KW’s
current balance sheet shows net fixed assets of $4,000,000; current liabilities of
2,200,000 and net working capital of $90,000. If all the current assets were liquidated
today, the company would receive $2.8 million cash. What is book value of KW’s
assets today? What is market value?

8. (E10, p42, Ross). The 2004 balance sheet of RR showed current assets of $1,600
and current liabilities of $940. The 2005 balance sheet showed CA of $ 1,720 and CL
of$1,180. What was the company’s 2005 change in net working capital (NWC) ?

9.(E12, p43, Ross) The 2004 balance sheet of Anna ‘s tannis Shop, Inc, showed
$820,000 in the common stock account and $6.8 million in the additional paid in
surplus account. The 2005 balance sheet showed $ 855,000 and $7.6 millions and the
same 2 accounts, respectively. If the company paid out $600,000 in cash dividends
during 2005, what was the cash flow to stockholders for the year.?