Q: Which of the following best describes the balance sheet equation?

$$\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$$

Q: Given the following data for 2012: EBIT = £11,481 million, Tax = £4,478 million, Depreciation = £4,050 million. Calculate Operating Cash Flow (OCF) using the formula $$\text{OCF} = \text{EBIT} \times (1 - T) + \text{Depreciation}$$, where the tax rate $$T = \frac{4,478}{11,481}.$$

$$\text{OCF} = 11,481 \times (1 - 0.39) + 4,050 = 11,050$$ million

Q: What is the formula for calculating Free Cash Flow (FCF)?

$$\text{FCF} = \text{OCF} - \Delta \text{FA} - (\Delta \text{CA} - \Delta \text{AP} - \Delta \text{Accruals})$$

Question 1

Which of the following best describes the balance sheet equation?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Shareholders' Equity}$$

Question 2

Which section of the statement of cash flows would the purchase of new equipment appear in?

Accepted Answer

Investing activities

Question 3

If Vodafone Group Plc paid dividends of £6,947 million in 2012, how would this transaction be classified on the statement of cash flows?

Accepted Answer

As a cash outflow in financing activities

Question 4

Which of the following is NOT a source of corporate cash?

Accepted Answer

Increase in any asset

Question 5

Given the following data for 2012: EBIT = £11,481 million, Tax = £4,478 million, Depreciation = £4,050 million. Calculate Operating Cash Flow (OCF) using the formula $$	ext{OCF} = 	ext{EBIT} 	imes (1 - T) + 	ext{Depreciation}$$, where the tax rate $$T = \frac{4,478}{11,481}.$$

Accepted Answer

$$	ext{OCF} = 11,481 	imes (1 - 0.39) + 4,050 = 11,050$$ million

Question 6

Which of the following is a use of corporate cash?

Accepted Answer

Dividends paid

Question 7

Why does net income typically NOT equal the amount of cash a firm has earned?

Accepted Answer

Because of non-cash expenses and accrual accounting

Question 8

Which of the following best describes Free Cash Flow (FCF)?

Accepted Answer

Cash available for distribution to all investors after expenses, taxes, and investments for growth

Question 9

If Vodafone Group Plc had an increase in accounts payable of £1,138 million in 2012, how would this affect cash flow from operating activities?

Accepted Answer

It would increase cash flow from operating activities

Question 10

Which of the following factors does NOT directly affect the cost of money?

Accepted Answer

Company's advertising budget

Question 11

What is the formula for calculating Free Cash Flow (FCF)?

Accepted Answer

$$	ext{FCF} = 	ext{OCF} - \Delta 	ext{FA} - (\Delta 	ext{CA} - \Delta 	ext{AP} - \Delta 	ext{Accruals})$$

Question 12

Which of the following statements about the weighted average cost of capital (WACC) is correct?

Accepted Answer

WACC is the average rate of return required by all of the company’s investors

Question 13

Which of the following would be considered a financing activity on the statement of cash flows?

Accepted Answer

Increase in share capital

Question 14

If a company’s net income is £7,003 million, depreciation is £4,050 million, and there is a decrease in accounts receivable of £689 million, what is the total cash generated from operating activities before considering other adjustments?

Accepted Answer

$$7,003 + 4,050 + 689 = 11,742$$ million

Question 15

Which of the following is NOT a key aspect that affects an investment’s value?

Accepted Answer

The company’s advertising strategy

Question 16

What is the main difference between accounting profit and cash flow?

Accepted Answer

Accounting profit is based on accrual accounting, while cash flow focuses on actual cash movement

Question 17

If Vodafone Group Plc’s total liabilities in 2012 were £61,374 million and total shareholders’ equity was £78,202 million, what were the total assets?

Accepted Answer

$$61,374 + 78,202 = 139,576$$ million

Question 18

Which of the following would increase a company’s cash flow from operating activities?

Accepted Answer

A decrease in inventory

Question 19

What does the value of the firm represent?

Accepted Answer

The value of debt, equity, and other securities issued by the firm

Question 20

Which of the following would be considered a use of cash on the statement of cash flows?

Accepted Answer

Repurchase or retirement of stock

Financial Statements and Cash Flow Analysis: Vodafone Group Plc Case Study

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