FIN 3403 Exam 1 Chapter 2
Depreciation
reduces both taxes and net income
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.
As of 2012, which one of the following statements concerning corporate income taxes is correct?
A firm's tax is computed on an incremental basis.
Example of Current Assets
Inventory and Cash
Operating cash flow
cash flow which results from a firms ongoing, normal business activities
Which one of the following represents the most liquid asset?
$100 of inventory that is sold today for $100 cash
Which one of the following statements related to the cash flow to creditor is correct?
A positive cash flow to creditors represents a net cash outflow from the firm.
Which one of the following statements is correct concerning a corporation with taxable income of $125,000
An increase in depreciation will increase the operating cash flow.
Dividend payment - new equity raised
Cash flow to stockholders is defined as:
Which of the following is true according to Generally Accepted Accounting Principles?
Cost of goods sold are recorded based on the matching principle.
Notes Payable to a supplier in 8 months
Current Liabilities
Net working capital
Current assets - current liabilities
Interest Expense & Depreciation
Expenses for accounting purposes but not operating cash flows for financial purpose
Balance Sheet
Financial statement that shows the accounting value of a firm's equity as of a particular date
Income Statement
Financial statement that summarizes a firm's revenue and expenses over a period of time
Depreciation
For a tax paying firm, an increase in _________ will cause the cash flow from assets to increase
Which one of the following statements related to liquidity is correct?
Liquid assets are valuable to a firm.
Which of the following statements concerning net working capital is correct?
Net working capital increases when inventory is sold for cash at a profit.
Which of the following statements related to an income statement is correct?
Taxes reduce both net income and operating cash flow.
Generally Accepted Accounting Principles
The common set of standards and procedures by which audited financial statements are prepared is known as the:
A positive cash flow to stock holders indicated which one of the following with certainty?
The dividends paid exceeded the new equity raised
Which of the following statements related to an income statement is correct? - Assume accrual accounting is used.
The labor costs for producing a product are expended when the product is sold.
Which of the following statements related to taxes is correct?
The marginal tax rate for a firm can be either higher than or the same as the average tax rate.
Which of the following is included in the market value of a firm but are excluded from the firm's book value?
Value of management skills, Value of employee's experience, Value of employee's experience
Good reputation of the company
What is included in a firms market value but yet is excluded from the firm's accounting value
Selling inventory at a profit
What will increase the value of a firm's net working capital
Interest expense
Which one of the following is not included in cash flow from assets?
The firm utilized outside funding
Which one of the following must be true if a firm had a negative cash flow from assets
Office Salaries & Depreciation
apt to be a fixed cost
The book value of a firm is:
based on historical cost
Free cash flow
cash flow from assets is also known as the firms:
Cash flow from assets
cash flow of a firm which is available for distribution to the firm's creditors and stockholders
Cash flow to creditors
cash flow related to interest payments - any new borrowing is called
Which one of the following will increase the cash flow from assets, all see equal?
decrease in net capital spending
An increase in the depreciation expense will do which of the following?
decrease net income, increase the cash flow from assets
Noncash items
expenses which do not directly affect cash flows
The higher the degree of financial leverage employed by a firm:
higher the probability that the firm will encounter financial distress.
Average Tax Rate
is equal to total taxes divided by total taxable income.
Net Capital Spending
is equal to zero if the decrease in the next fixed asset is equal to the depreciation expenses.
Shareholder's Equity:
represents the residual value of a firm.
Marginal Tax Rate
the percentage of the next dollar you earn that must be paid in taxes is referred to as the:
Example of an intangible fixed asset
trademark