Chapter 2 Quiz

The common set of standards and procedures by which audited financial statements are prepared is know as the

Generally Accepted Accounting Principles

Which one of the following statements concerning net working capital is correct?

Net working capital increases when inventory is sold for cash at a profit

Which one of the following statements concerning net working capital is correct?

a decrease in the cash balance may or may not decrease net working capital

Which one of the following accounts is the most liquid?

accounts receivable

The ___ tax rate is equal to total taxes divided by total taxable income

average

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

balance sheet

The book value of a firm is:

based on historical cost

The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the

cash flow from assets

The cash flow related to interest payments less any net new borrowing is called the

cash flow to creditors

Net working capital is defined as

current assets minus current liabilities

Cash flow to stockholders is defined as:

dividend payments less net new equity raised

Noncash items refer to:

expenses which do not directly affect cash flow

Cash flow from assets is also known as the firm's

free cash flow

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?

good reputation of the company

The higher the degree of financial leverage employed by a firm, the:

higher the probability that the firm will encounter financial distress

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

income statement

The percentage of the next dollar you earn that must be paid in taxes is referred to as the ___ tax rate

marginal

Which one of these is most apt to be a fixed cost?

office salaries

Which term relates to the cash flow which results from a firm's ongoing, normal business activities?

operating cash flow

Depreciation:

reduces both taxes and net income

Shareholder's equity:

represents the residual value of a firm

Which one of the following will increase the value of a firm's net working capital?

selling inventory at a profit

Which one of the following must be true if a firm had a negative cash flow from assets?

the firm utilized outside funding

Which one of the following is classified as an intangible fixed asset?

trademark