Financial Analysis & Planning Flashcards

A corporation has EBIT of $500,000, interest expense of $50,000, and a 21% tax rate. What is the net income?

Answer: $355,500

EBT = $500,000 - $50,000 = $450,000; Net income = $450,000 × (1 - 0.21) = $355,500.

Which ratio measures the number of days a company takes to collect its accounts receivable?

Answer: Days Sales Outstanding (DSO)

DSO = (Accounts Receivable / Net Credit Sales) × 365, indicating average collection time.

Under IRC Section 469, passive activity losses may generally be used to offset:

Answer: Passive activity income only

Section 469 limits passive activity losses to offsetting passive activity income, with suspended losses carried forward.

A company's quick ratio is 1.5 and its current ratio is 2.0. This difference most likely indicates a significant amount of:

Answer: Inventory

The quick ratio excludes inventory, so a gap between quick and current ratios signals substantial inventory holdings.

For tax purposes, a C corporation's net operating loss (NOL) generated after 2017 can be carried forward for:

Answer: Indefinitely, limited to 80% of taxable income

The Tax Cuts and Jobs Act of 2017 eliminated the carryback for most NOLs and allows indefinite carryforward limited to 80% of taxable income.

Which financial planning concept describes the process of determining the present value of future cash flows using an appropriate discount rate?

Answer: Discounted cash flow (DCF) analysis

DCF analysis converts projected future cash flows into their equivalent present value using a discount rate reflecting risk and time value.

A taxpayer sells a rental property held for 10 years at a $120,000 gain. The portion attributable to depreciation recapture is taxed at a maximum federal rate of:

Answer: 25%

Under IRC Section 1250, unrecaptured depreciation on real property is taxed at a maximum rate of 25%.