FIN. HW 1

The term "free cash flow" is another term to describe:

Cash Flow from Assets.

Which one of the following has nearly the same meaning as free cash flow?

Cash flow from assets

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:

income statement.

Financial leverage:

increases the potential return to the stockholders.

Cash flow to creditors is defined as:

interest paid minus net new borrowing.

A firm's liquidity level decreases when:

inventory is purchased with cash.

Net working capital increases when:

inventory is sold at a profit.

The market value of a firm's fixed assets:

is equal to the estimated current cash value of those assets.

Cash flow to creditors increases when:

long-term debt is repaid.

If a firm has a negative cash flow from assets every year for several years, the firm:

may be continually increasing in size.

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?

noncash items

The market value:

of an asset tends to provide a better guide to the actual worth of that asset than does the book value.

Shareholders' equity is best defined as:

the residual value of a firm.

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

average tax rate

Based on the recognition principle, revenue is recorded on the financial statements when the: I. payment is collected for the sale of a good or service. II. earnings process is virtually complete. III. value of a sale can be reliably determined. IV. product is physically delivered to the buyer.

2 and 3 only

What is the maximum average tax rate for corporations?

35%

Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700, and long-term debt of $23,000. What is the value of the owners' equity?

71600

All else held constant, the book value of owners' equity will decrease when:

dividends exceed net income for a period.

Cash flow to stockholders is defined as:

dividends paid minus net new equity raised.

Given a profitable firm, depreciation:

lowers taxes

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

marginal tax rate.

Shareholders' equity is equal to:

net fixed assets minus long-term debt plus net working capital.

Cash flow from assets is defined as:

operating cash flow minus the change in net working capital minus net capital spending.

Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant?

An increase in depreciation

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity.

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

Balance sheet

Which one of the following is an intangible fixed asset?

Copyright

The passage of the Tax Cuts and Jobs Act of 2017 created a revised progressive tax structure, which applies to all of the following except:

Corporations

An increase in which one of the following will increase operating cash flow for a profitable, tax-paying firm?

Depreciation

Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow?

Increase in accounts payable

Which one of these is correct?

Net income is distributed either to dividends or retained earnings.

Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period?

Positive cash flow from assets

Generally Accepted Accounting Principles, as they relate to the Income Statement includes the recognition principle: to recognize revenue when the earnings process is virtually complete and the value of an exchange of goods or services is known or can be reliably determined. Which of the following statements is true with regard to this principle?

Revenue is recognized at the time of sale. Costs associated with the sale of that product likewise would be recognized at that time

Net working capital decreases when:

a dividend is paid to current shareholders.

Production equipment is classified as:

a tangible fixed asset.

Highly liquid assets:

can be sold quickly at close to full value.

Firms that compile financial statements according to GAAP:

can still manipulate their earnings to some degree.

Net working capital is defined as:

current assets minus current liabilities.

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation.

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease.

A negative cash flow to stockholders indicates a firm:

received more from selling stock than it paid out to shareholders.

An income statement prepared according to GAAP:

records expenses based on the matching principle.

Market values:

reflect expected selling prices given the current economic situation.

Net income increases when:

revenue increases

The recognition principle states that:

sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.

Operating cash flow is defined as:

the cash that a firm generates from its normal business activities.

The matching principle states that:

the costs of producing an item should be recorded when the sale of that item is recorded as revenue.

The concept of marginal taxation is best exemplified by which one of the following?

Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes.

Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a dividend. The cash flow statement for last year must have which one of the following assuming that no new shares were issued?

Positive cash flow to stockholders

Which one of the following is included in the market value of a firm but not in the book value?

Reputation of the firm