Santa Barbara National Comprehensive High School appreciate what that does for our relationship, but it doesnt

(SHS) keep the roof from leaking. The pair are in the process of
1. Is the net income of a year the money the company deciding how to optimize their saving so they can satisfy both
made that particular year is it a number whose desires, instead of making the goals an either-or proposition.
significance is quite doubtful? 17 20.
2. Is depreciation the loss of value of fixed assets? 2004
3. The so called cash flow (net income plus depreciation) Sales $8,036
is a flow of cash but is it a flow to the shareholders or to Depreciation 1,154
the company? Cost of goods sold 2,764
4. The dividend is the part of the net income that the Other expenses 656
company distributes to shareholders. As the dividend Interest 538
represents real money, the net income is also a real Cash 4,214
money. Is that true? Accounts receivable 5,578
5. The part of the net income that is not distributed to
Short-tern notes payable 814
shareholders goes to reserves (shareholders equity). As
Long-term debt 14,112
dividends represent real money, reserves are also real
money. Is that true? Net fixed assets 35,338
6. Does the shareholders equity represent the savings a Accounts payable 4,426
company has accumulated through the years? Inventory 9,918
7. Is book value the best proxy to the value of the shares? Dividends 980
8. Is a valuation realized by a prestigious investment bank
a scientifically approved result which any investor could a) Create and Income Statement and a Balance Sheet for each
use as a reference? year. [Hint: Youll need to add accounts to balance the
9. Is it possible for a company with a positive net income balance sheet.}]
and which does not distribute dividends to find itself in b) For 2005 calculate the cash flow from assets, the cash flow
suspension of payments? to creditors, and the cash flow to stockholders.
10. There are four ways a company can use the money it
generates; a) buying the other companies or assets; b) Santa Barbara National Comprehensive High School
reducing its debt; c) distribute it to shareholders, and d) (SHS)
increasing to cash holdings. What other reasonable 18. Is the net income of a year the money the company
things can it do? made that particular year is it a number whose
11. Assuming a company wishes to distribute money to its significance is quite doubtful?
shareholders, is it better to distribute dividends or to 19. Is depreciation the loss of value of fixed assets?
repurchase shares? 20. The so called cash flow (net income plus depreciation)
12. What is NOPAT? is a flow of cash but is it a flow to the shareholders or to
13. WHAT IS EBITDA? the company?
14. Tell me your thoughts about this situation. 21. The dividend is the part of the net income that the
Astrid and Fred take home roughly the same salary and split company distributes to shareholders. As the dividend
all household represents real money, the net income is also a real
expenses down the middle. Each pays half from a separate money. Is that true?
checking account, 22. The part of the net income that is not distributed to
and they also have separate savings and investment shareholders goes to reserves (shareholders equity). As
accounts. When we lived dividends represent real money, reserves are also real
together before we got married, everything was separate and money. Is that true?
that was 23. Does the shareholders equity represent the savings a
acceptable, and now we need to revisit the matter, says company has accumulated through the years?
Astrid. She is 24. Is book value the best proxy to the value of the shares?
working on persuading Fred to open some joint accounts to 25. Is a valuation realized by a prestigious investment bank
pay for household a scientifically approved result which any investor could
expenses and handle their investments, to make transactions use as a reference?
easier and make them feel more like a unit. Having all of our 26. Is it possible for a company with a positive net income
finances completely separate has become a source of and which does not distribute dividends to find itself in
contention. suspension of payments?
15. Tell me your thoughts about this situation 27. There are four ways a company can use the money it
For their eight years of marriage, Shaun is been the generates; a) buying the other companies or assets; b)
households primary reducing its debt; c) distribute it to shareholders, and d)
money manager and, as the higher earner, has paid for the increasing to cash holdings. What other reasonable
larger things can it do?
expenses. He dutifully tracks those bills as well as their 28. Assuming a company wishes to distribute money to its
spending in a shareholders, is it better to distribute dividends or to
spreadsheetand often pushes Melissa to be frugal. If I want repurchase shares?
to spend my 29. What is NOPAT?
money on something he thinks is frivolous, he encourages me 30. WHAT IS EBITDA?
to be more 31. Tell me your thoughts about this situation.
careful, and we have a discussion about whether I really need Astrid and Fred take home roughly the same salary and split
to buy that all household
item, says Melissa. To limit such discussions and prevent expenses down the middle. Each pays half from a separate
arguments about checking account,
her purchases, Melissa has set herself a max spending limit of and they also have separate savings and investment
$200 per item accounts. When we lived
and pays for extraneous items with money from her own together before we got married, everything was separate and
separate account. that was
16. Tell me your thoughts about this situation. acceptable, and now we need to revisit the matter, says
About a year ago Richs position was reduced from full- to Astrid. She is
part-time, and his salary was cut commensurately. The shift working on persuading Fred to open some joint accounts to
has actually worked well in terms of the couples child-care pay for household
needsthey have two daughters, 4 months and 3 years old expenses and handle their investments, to make transactions
but Rich worried that Claudia would be unhappy reining in easier and make them feel more like a unit. Having all of our
their comfortable lifestyle. I dont need a lot of extras, but I finances completely separate has become a source of
was worried that cutting back on things like eating out and contention.
Music Together classes for our older daughter might mean 32. Tell me your thoughts about this situation
more to her, Rich says. When he and Claudia drafted a new For their eight years of marriage, Shaun is been the
budget, Rich realized the lifestyle changes didnt bother her households primary
as much as he thought they would. Shes been really great money manager and, as the higher earner, has paid for the
about our situation, he says, and hasnt pressured me to go larger
out and earn more. expenses. He dutifully tracks those bills as well as their
17. Tell me your thoughts about this situation spending in a
We disagree sometimes about where were spending spreadsheetand often pushes Melissa to be frugal. If I want
money, says Nick, who wants to use extra funds on home to spend my
improvements, while Erica would prefer to use some money on something he thinks is frivolous, he encourages me
discretionary income on fun. She thinks it may be more to be more
worthwhile to spend money on a date night, says Nick. I
 careful, and we have a discussion about whether I really need 17 20.
to buy that 2004
item, says Melissa. To limit such discussions and prevent Sales $8,036
arguments about Depreciation 1,154
her purchases, Melissa has set herself a max spending limit of Cost of goods sold 2,764
$200 per item Other expenses 656
and pays for extraneous items with money from her own Interest 538
separate account. Cash 4,214
33. Tell me your thoughts about this situation. Accounts receivable 5,578
About a year ago Richs position was reduced from full- to
Short-tern notes payable 814
part-time, and his salary was cut commensurately. The shift
Long-term debt 14,112
has actually worked well in terms of the couples child-care
needsthey have two daughters, 4 months and 3 years old Net fixed assets 35,338
but Rich worried that Claudia would be unhappy reining in Accounts payable 4,426
their comfortable lifestyle. I dont need a lot of extras, but I Inventory 9,918
was worried that cutting back on things like eating out and Dividends 980
Music Together classes for our older daughter might mean
more to her, Rich says. When he and Claudia drafted a new c) Create and Income Statement and a Balance Sheet for each
budget, Rich realized the lifestyle changes didnt bother her year. [Hint: Youll need to add accounts to balance the
as much as he thought they would. Shes been really great balance sheet.}]
about our situation, he says, and hasnt pressured me to go d) For 2005 calculate the cash flow from assets, the cash flow
out and earn more. to creditors, and the cash flow to stockholders.
34. Tell me your thoughts about this situation
We disagree sometimes about where were spending
money, says Nick, who wants to use extra funds on home
improvements, while Erica would prefer to use some
discretionary income on fun. She thinks it may be more
worthwhile to spend money on a date night, says Nick. I
appreciate what that does for our relationship, but it doesnt
keep the roof from leaking. The pair are in the process of
deciding how to optimize their saving so they can satisfy both
desires, instead of making the goals an either-or proposition.