A company purchased an equipment by paying $26, 000 cash. When this transaction is recorded, the cash account is debited for $26, 000.

A company prepares its financial statements in accordance with U.S.GAAP (generally accepted accounting principles).It expected to be the sole supplier for a state-wide school milk program and had production facilities valued at $28.4 million.Recently several other companies were also granted milk-supply contracts throughout the state and the company now estimates that it will only be able to generate cash flows of $3 million per year for the next 7 years with its facilities.The firm has a cost of capital of 10%.

The impairment loss (in $-millions) on the production facilities will most likely be reported in the company’s financial statements as a:

A.13.8 reduction in operating cash flows..

B.13.8 impairment loss in the income statement

C.7.4 reduction in the balance sheet carrying amount.

A company has annual after-tax cash flows of $2 million per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before-tax cost of debt of 5% and an after-tax weighted average cost of capital of 8% per year. Corporation tax is 20%.

What is the theoretical value of the company?

A.$20m

B.$40m

C.$50m

D.$25m

How are people expected to purchase their tickets?

A．by paying in cash.

B．by charging them to their personal account.

C．by using a store credit card.

D．by writing a personal check.

HUAMING Co. plans to purchase a machine, and the related information is as follows: The machine is expected to incurr cost of $15 million, and its useful life is 3 years. It is depreciated straight-line to zero over its useful life, and there is no scrapt value. The sales will be increase by $12 millions, $20 millions and $15 millions respectively in the following 3 years, and the variable costs will be corresponding increased by $4 millions, $10 millions and $6millions. The tax rate is 25%, and the required return rate is 10%. The relavant PV factor is as follows: 1 2 3 （P/F,10%,n） 0.9091 0.8264 0.7513 （P/A,10%,n） 0.9091 1.7355 2.4869 Required： （1）calculate the anual depreciation. （2）calculate the annual operating cash flow. （3）calculate the payback period（静态回收期）。 （4）calculate the NPV of this project. （5）Decide whether to make this investment or not, and why.

According to Sally, payment by check is much safer than by cash because

A．there is not much to be done about stolen cash for the thief can be caught.

B．if a check is stolen or lost you can cancel it to stop the payment.

C．there is not too much help to deduct the tax paying by cash in the exporting sector.

The following information is relevant for questions 9 and 10

A company’s draft financial statements for 2005 showed a profit of $630,000. However, the trial balance did not agree,

and a suspense account appeared in the company’s draft balance sheet.

Subsequent checking revealed the following errors:

(1) The cost of an item of plant $48,000 had been entered in the cash book and in the plant account as $4,800.

Depreciation at the rate of 10% per year ($480) had been charged.

(2) Bank charges of $440 appeared in the bank statement in December 2005 but had not been entered in the

company’s records.

(3) One of the directors of the company paid $800 due to a supplier in the company’s payables ledger by a personal

cheque. The bookkeeper recorded a debit in the supplier’s ledger account but did not complete the double entry

for the transaction. (The company does not maintain a payables ledger control account).

(4) The payments side of the cash book had been understated by $10,000.

9 Which of the above items would require an entry to the suspense account in correcting them?

A All four items

B 3 and 4 only

C 2 and 3 only

D 1, 2 and 4 only

Assume U.S.GAAP (generally accepted accounting principles) applies unless otherwise noted.

A company has equipment with an original cost of $850,000, accumulated amortization of $300,000 and 5 years of estimated remaining useful life.Due to a change in market conditions the company now estimates that the equipment will only generate cash flows of $80,000 per year over its remaining useful life.The company’s incremental borrowing rate is 8 percent.Which of the following statements concerning impairment and future return on assets (ROA) is most accurate? The asset is:

A.impaired and future ROA increases.

B.impaired and future ROA decreases.

C.not impaired and future ROA increases.

Which of the following will most likely increase acompany’s operating cash flow? An increase in:

A.days sales payable (DSP).

B.gains on the sale of long-term assets.

C.use of operating leases versus financing leases.

A company that capitalizes costs instead of expensing them will have:

A.higher income variability and higher cash flows from operations.

B.lower cash flows from investing and lower income variability.

C.lower cash flows from operations and higher profitability in early years.

An investor wants to determine the intrinsic value of the common stock for a company with the following characteristics:

· The firm maintains a constant dividend payout ratio.

· Goodwill and patents account for a high proportion of the firm’s assets.

· The firm’s revenues and earnings are highly correlated with the business cycl

A.Furthermore, the investor focuses on the firm’s capacity to pay dividends rather than expected dividends. Considering the characteristics, the investor will most likely use which of the following valuation models?

B.Gordon dividend growth model

C.Asset-based valuation model

D.Free cash flow to equity model