chapter 2 wk 2

EBIT((Earning before Interest) - Interest expense

EBT

If a firm's current assets equal $200 and its current liabilities equal $150, then its net working capital equals ______.

$ 50 Reason: Correct. $200 − 150 = $50.

If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is ______.

$20 Reason: Correct. $100 − 80 = $20.

If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ____.

$50 Reason: Correct. $100 - 60 + 10 = $50.

If ending net fixed assets are $100, beginning fixed assets are $40, and depreciation is $10, then the change in capital spending is _____.

$70

In finance, the value of a firm depends on its ability to generate ______.

Cash flows Reason: Correct. In finance, the value of a firm depends on its ability to generate cash flows.

Which one of the following is true?

Cash flows can be derived from financial statements

Taxes represent which of the following ______.

Cash outflow

Net fixed assets - Beginning net fixed assets + Depreciation

Change in capital spending

The cash flows from financing activities include changes in ______.

Common stock Long-term debt

The cash flow identity states that cash flow from assets equals cash flows to ____.

Creditors and stockholders

Net Income/total shares outstanding

Earnings per share

Depreciation is the accountant's estimate of the cost of ______ used up in the production process.

Equipment

True or false: Operating cash flow includes capital spending and working capital requirements.

False

Changes in notes payables are included in the ______ section of the accounting statement of cash flows.

Financing

The activity of making net payments to creditors and owners (excluding interest) is called a(n) ______ activity in the accounting statement of cash flows.

Financing

Selling a firm's plant and equipment results in a change in ____.

Fixed assets

Revenue - Expenses

Income

Revenue minus expenses is the accounting definition of ______

Income

Stockholders' equity ______ when retained earnings increase.

Increases

When a firm pays out fewer dividends, it ______ the accounting value of its retained earnings.

Increases

Cash flow to creditors

Interest Expenses Paid - [Long term debt at the end - Long term Debt at the Beginning]

Cash flows from the acquisition and sale of fixed assets are located in the _______ activities section of the accounting statement of cash flows.

Investing

Cash flow analysis is popular because

It is harder to "spin" and mislead

Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets.

Less than

The short run for a firm is the period of time during which ______.

Some costs are fixed Output can vary

An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____

Statement of cash flows

What is treasury stock?

Stock the firm has repurchased

Operating cash flow reflects which one of these?

Tax payments

______ is the income subject to tax.

Taxable income

EBT * Tax%

Taxes

True or false: Taxes can be a large cash outflow for a corporation.

True

True or false: The realization (timing) of income can be useful to a firm.

True

______ refers to the quickness and ease with which assets can be converted to ________

liquidity____cash

Cash flow from operations is calculated by adding depreciation to EBIT and ______ current taxes.

subtracting Reason: Correct. Cash flow from operations is calculated by adding depreciation to EBIT and subtracting taxes.

If net income is $97 million, depreciation is $33 million, and deferred taxes are $22 million, what is the cash flow from operating activities?

152 97+33+22

The federal corporate tax rate in the United States became a flat ____Blank 1Blank 1 tax , Incorrect Unavailable percent with the passage of the Tax Cuts and Jobs Act of 2017.

21

The statement of cash flow explains changes in _____.

Cash and equivalents

interest paid - net new borrowing

Cash flow paid to creditors

Dividends paid - Net new equity raised

Cash flow to stockholders

One of the reasons why cash flow analysis is popular is the difficulty in manipulating, or spinning_______

Cash flows

dividends/total shares outstanding

Dividends per share

To smooth its earnings, a firm is more apt to sell appreciated property and realize the income on that sale when its other earnings are _____.

Down

Sales + Costs + Depreciation expense

EBIT

In the United States, corporate taxes are which type of system following passage of the Tax Cuts and Jobs Act of 2017?

Flat tax

The price at which willing buyers and sellers would trade is called ______ value.

Market

If the acquisition of fixed assets is $10,000,000 and the sale of fixed assets is $15,000,000, capital spending will be ______.

Negative

EBT-Tax rate

Net Income

Which of the following are examples of financing activities?

Net payments to creditors Net payments to owners

Current assets - Current liabilities

Net working Capital

Net Income + Depreciation

Operating Activities

Earnings before Interest + Dep - taxes

Operating cash flow

How is income defined?

Revenue minus expenses

What is depreciation?

a systematic expensing of an asset based on the asset's estimated life Reason: Correct. Depreciation is the accountant's estimate of the cost of equipment used up in the production process.

On the balance sheet, assets are listed at their _____ value.

book

which of the following will change fixed assets

buying a new machine & selling a plant the issuer of the stock

Which of the following cash flows appear in the financing activities section of the accounting statement of cash flows?

payment of dividends repurchase of stock retirement of long-term debt

Assets - Liabilities

stockholders equity

If net income is $77 million, depreciation is $13 million, and deferred taxes are $2 million, what is the cash flow from operating activities?

92 77+13+ 2

A balance sheet reflects a firm's ______ value on a particular date.

Accounting

What does a balance sheet reflect about a firm?

Accounting value on a specific date

Which of the following are included in cash flow from investing activities?

Acquisition of fixed assets Sales of fixed assets

The cash flow identity states that cash flows from ______ should equal cash flows to creditors and equity investors.

Assets

liabilities + stockholders equity

Assets

Liquidity refers to the ease of changing _____.

Assets to cash

Tax bill/taxable Income

Average tax rate

The short run is a period when there are ______ costs.

Both fixed and variable