Ch.2 Principles of Finance
Current assets are defined as assets that can be turned into cash within Blank______ months.
12
In the long run, costs may be considered as Blank______.
all variable
The short run is a period when there are Blank______ costs. Multiple choice question.
both fixed and variable
Noncash items do not affect Blank______.
cash flow
In finance, the value of a firm depends on its ability to generate Blank______.
cash flows
When a firm smooths earnings to please investors, it is called Blank______.
earnings management
Period costs are the costs that are allocated to a specific Blank______.
interval of time
Interest paid ________ (plus/minus) net new borrowing equals cash flow to creditors.
minus
The cash flow that results from the firm's day-to-day activities of producing and selling is called:
operating cash flow.
Earnings management is a controversial practice in which corporations Blank______ or Blank______ their earnings to "smooth out" dips and surges and keep investors calm.
overstate, understate
How is the average income tax rate computed?
total tax bill / total taxable income
According to GAAP, when is income reported?
when it is earned or accrued
Long-term liabilities represent obligations of the firm lasting more than Blank______.
1 year
The more debt a firm has, the greater its:
financial leverage
Which of the following is not a component of cash flow from assets? Multiple choice question.
financing expenses
Cash flow to creditors equals: Multiple choice question.
interest paid minus net new borrowing.
Current assets (plus/minus) current liabilities equals NWC.
minus
True or false: Operating cash flow does not include depreciation or interest.
true
Financial leverage refers to a firm's Blank______.
use of debt in its capital structure
According to GAAP, when is revenue recognized on an income statement?
when the earnings process is virtually completed when the value of an exchange of goods or services is known or reliably determined
Cash flow to stockholders equals Blank______.
dividends paid minus net new equity raised
According to the current U.S. corporate tax code, the corporate tax rate in effect for 2021 is Blank______ percent.
21
Which of the following is the balance sheet equation?
Assets equal liabilities plus stockholders' equity.
Product costs are usually shown on the income statement under the heading of Blank______.
COGS
Assets can be categorized as:
current and fixed assets tangible and intangible assets
______ changes as the output of the firm changes.
Variable cost
The last item (or "bottom line") on the income statement is typically the Blank______.
Net income
Which one of these is considered to be the most liquid?
accounts receivable
Net income refers to income earned Blank______.
after interest and taxes
Liquidity refers to the ease of changing Blank______.
assets to cash
A company's Blank______ tax rate is its tax bill divided by its total taxable income, and its Blank______ tax rate is the tax rate it pays on the next dollar of income.
average; marginal
Which of the following are components of cash flow from assets?
change in net working capital capital spending operating cash flow
Tax rates for proprietorships, partnerships, and LLCs Blank______ with the passage of the Tax Cuts and Jobs Act of 2017.
changed
A positive operating cash flow indicates that the firm is generating enough cash to:
pay everyday cash outflows.
Ending net fixed assets minus beginning net fixed assets _________ depreciation equals net investment in fixed assets.
plus
Net capital spending is equal to ending net fixed assets minus beginning net fixed assets Blank______.
plus depreciation
Liquidity has two dimensions which are the ability to:
quickly convert assets into cash without significant loss in value.
The more debt a firm has, the greater its:
degree of financial leverage.
Net capital spending is equal to the change in net fixed assets plus Blank______.
depreciation
Which of the following is an example of a noncash item on an income statement?
depreciation
True or false: Current assets plus current liabilities equals net working capital.
false
True or false: Ending net fixed assets plus beginning net fixed assets minus depreciation equals net investment in fixed assets.
false
Costs that do not change in the short run arise because of Blank______.
fixed commitments
The balance sheet identity shows that stockholders' equity equals assets Blank______ liabilities.
minus
Stockholders' equity is always shown on the Blank______ of the balance sheet.
right-hand side
Physical assets are termed Blank______ assets.
tangible
Operating cash flow _________.
tells us whether or not a firm's cash inflows from its operations are sufficient to cover its everyday cash outflows is a sign of trouble if negative over a long period of time
Changes in capital spending can be negative if:
the firm sold more fixed assets than it purchased.
On which side of the balance sheet do liabilities appear?
the right-hand side
Free cash flow is better described as Blank______.
total distributable cash flow
Which of the following are classified as fixed assets on the balance sheet?
trademark buildings equipment
True or false: Free cash flow is also known as cash flow from assets. True false question.
true
True or false: Interest paid minus net new borrowing equals cash flow to creditors.
true
