FIN 560
A corporation sold a fixed asset for $100,000. This is
an investment cash flow and a source of funds
A current asset is:
an item currently owned by the firm that will convert to cash within the next 12 months.
FASB Standard No. 52 mandates that U.S. based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the
current rate
Allocation of the historic costs of fixed assets against the annual revenue they generate is called
depreciation
________ is an expense that is a legal obligation of the firm.
Interest Expense
If a bond pays $1,000 plus interest at maturity, $1,000 is called the
par value
Sarbanes-Oxley Act of 2002
passed to eliminate the many disclosure and conflict of interest problems of corporations, established the Public Company Accounting Oversight Board (PCAOB), which is a not-for-profit corporation that overseas auditors
An annuity with an infinite life is called a(n)
perpetuity
Profit maximization as the goal of the firm is not ideal because
profit maximization does not consider risk.
In planning and managing the requirements of the firm, the financial manager is concerned with
the mix and type of assets, the type of financing utilized, and analysis in order to monitor the financial condition.
Generally Accepted Accounting Principles (GAAP)
the practice and procedure guidelines used to prepare and maintain financial records and reports; authorized by the Financial Accounting Standards Board (FASB)
The key input to any cash budget is
the sales forecast.
The ________ ratio measures the firm's ability to pay contractual interest payments.
times interest earned
A U.S. parent company's foreign equity accounts are translated into dollars using the exchange rate that prevailed when the parent's equity investment was made (the historical rate).
true
A bond issued by an American Company that is denominated in Swiss Francs and sold in Switzerland would be an example of a foreign bond.
true
A conversion feature in a bond allows bondholders to change each bond into a stated number of shares of common stock.
true
A prospectus is a portion of the security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position.
true
An annuity due is an amount that occurs at the beginning of each period.
true
Cash planning involves the preparation of the firm's cash budget. Without adequate cashregardless of the level of profitsany firm could fail.
true
When computing the number of deposits needed to accumulate to a future sum, it will take longer the lower the interest rate, holding the future value and deposit size constant.
true
Because a rise in interest rates, and therefore the required return, results in an increase in bond value, bondholders are typically more concerned with dropping interest rates.
false
Benchmarking is a type of time-series analysis in which the firm's ratio values are compared to those of a key competitor or group of competitors, primarily to isolate areas of opportunity for improvement.
false
Dividend payments change directly with changes in earnings per share
false
In limited partnerships, all partners' liabilities are limited to their investment in the partnership.
false
The liquidity of a business firm is measured by its ability to satisfy its long-term obligations as they come due.
false
The primary purpose in preparing pro forma financial statements is
for profit planning
Since 2009, the liquidity of Dana Dairy Products ________. (See Table 3.2)
has deteriorated
________ bonds are characterized by interest payments that are required only when earnings are available from which to make such payment.
income
________ generally reflect(s) the anticipated financial impact of planned long-term actions.
Strategic Financial Plans
Gross fixed assets
The original cost of all fixed (long-term) assets owned by the firm.
If the required return is greater than the coupon rate, a bond will sell at
a discount
Managing the firm's liabilities includes all of the following EXCEPT
cash
A firm has an issue of $1,000 par value bonds with a 12 percent stated interest rate outstanding. The issue pays interest annually and has 10 years remaining to its maturity date. If bonds of similar risk are currently earning 8 percent, the firm's bond will sell for ________ today.
$1,268.20
A corporation had year end 2004 and 2005 retained earnings balances of $320,000 and $400,000, respectively. The firm reported net profits after taxes of $100,000 in 2005. The firm paid dividends in 2005 of
$20,000
A firm had year end 2004 and 2005 retained earnings balance of $670,000 and $560,000, respectively. The firm reported net profits after taxes of $100,000 in 2005. The firm paid dividends in 2005 of
$210,000
Xiao Li wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-year deposits over the next 10 years. If Xiao Li can earn 5 percent on her investments, how much must she deposit at the end of each year?
$3,975
Long-term debt for CEE in 2010 was ________. (See Table 3.1)
$30,763
The future value of an ordinary annuity of $2,000 each year for 10 years, deposited at 12 percent, is
$35,098
Net fixed assets for CEE in 2010 were ________. (See Table 3.1)
$45,484
A firm has total debt of $1,200 and a debt-equity ratio of .30. What is the value of the total assets?
$5,200 Total equity = $1,200 .30 = $4,000; Total assets = $1,200 + $4,000 = $5,200
Last year, HD Corporation had $1 million in operating cash flow, $500,000 in net capital spending, and a decrease in net working capital of $25,000. What was the firm's cash flow from assets?
$525,000
The pro forma total current assets amount is ________. (See Table 4.5)
$525,000
Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________.
$56
The pro forma net fixed assets amount is ________. (See Table 4.5)
$575,000
Calculate the value of a $1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar-risk bonds is 20 percent.
$656.77
The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is
$77
A firm has net working capital of $350. Long-term debt is $600, total assets are $950 and fixed assets are $400. What is the amount of the total liabilities?
$800 Current assets = $950 - $400 = $550; Current liabilities = $550 - $350 = $200; Total liabilities = $200 + $600 = $800
A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm's bond will sell for ________ today.
$840.67
Under MACRS, an asset which originally cost $100,000 is being depreciated using a 10-year normal recovery period. The depreciation expense in year 5 is
$9,000
James plans to fund his individual retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be
$98,846
The stockholder's annual report must include
-a statement of cash flows. -an income statement. -a balance sheet. -a statement of retained earnings.
The analyst should be careful when conducting ratio analysis to ensure that
-the overall performance of the firm is not judged on a single ratio. -the dates of the financial statements being compared are the same. -audited statements are used. -the same accounting procedures were used.
A firm has a debt-equity ratio of .40. What is the total debt ratio?
0.29 The debt-equity ratio is .40. Thus, if total debt is $40, total equity is $100 and total assets are $140. Total debt ratio = $40 $140 = .29
The four key financial statements required by the SEC for reporting to shareholders are:
1) Income statement 2) Balance sheet 3) Statement of stockholders' equity 4) Statement of cash flows
If Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________.
10; 36.5
Dorothy borrows $10,000 from the bank. For a four-year loan, the bank requires annual end-of-year payments of $3,223.73. The annual interest rate on the loan is
11 percent
A firm has sales of $1,200, net income of $200, net fixed assets of $500, and current assets of $300. The firm has $100 in inventory. What is the common-size statement value of inventory?
12.5 percent Common-size inventory = $100 ($500 + $300) = .125 = 12.5 percent
What is the rate of return on an investment of $16,278 if the company expects to receive $3,000 per year for the next 10 years?
13 percent
What is the yield to maturity, to the nearest percent, for the following bond: current price is $908, coupon rate is 11 percent, $1,000 par value, interest paid annually, eight years to maturity?
13 percent
The return on total assets for Dana Dairy Products for 2010 was ________. (See Table 3.2)
2.5 percent
Jupiter Explorers has $6,400 in sales. The profit margin is 4 percent. There are 6,400 shares of stock outstanding. The market price per share is $1.20. What is the price-earnings ratio?
30 Earnings per share = (.04 $6,400) 6,400 = .04; Price-earnings ratio = $1.20 .04 = 30
The average collection period for Dana Dairy Products in 2010 was (See Table 3.2)
32.5 days
The debt ratio for Dana Dairy Products in 2010 was ________.(See Table 3.2)
55 percent
ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was
57 days
What is the rate of return on an investment of $124,090 if the company expects to receive $10,000 per year for the next 30 years?
7 percent
Corporate owner's receive realizable return through
?
________ yield curve reflects lower expected future rates of interest.
A downward-sloping
Income Statement
A financial summary that shows how much money the business has made or has lost over a period of time prepared quarterly for reporting, computed monthly by management and quarterly for tax purposes
________ is a paid individual, corporation, or commercial bank trust department that acts as a third party to a bond indenture to ensure that the issuer does not default on its contractual responsibilities to the bondholders.
A trustee
________ is issued with a very low coupon and sells significantly below its par value.
A zero or no coupon bond
Which one of the following statements is true? A) Accounting income is generally equal to cash flow. B) Assets are usually listed on the balance sheet at market value. C) Accounting statements are usually prepared to match the timing of income and expenses. D) The balance sheet equity account represents the market value of the firm to the stockholders. E) The balance sheet tells investors exactly what the firm is worth.
Accounting statements are usually prepared to match the timing of income and expenses.
Indicate which of the following is true about annuities. A) An ordinary annuity is an equal payment paid or received at the beginning of each period. B) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period. C) An annuity due is an equal payment paid or received at the beginning of each period. D) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period.
An annuity due is an equal payment paid or received at the beginning of each period. (C)
________ forecast is based on a buildup, or consensus, of sales forecasts through the firm's own sales channels, adjusted for additional factors such as production capabilities.
An internal sales
Which of the following is a career opportunity in managerial finance?
Capital Expenditures Management.
________ are secured by stock and/or bonds that are owned by the issuer.
Collateral trust bonds
Net profits after taxes are defined as
EBIT minus interest and taxes
________ are bonds that have a short maturity, typically one to five years, and which can be redeemed or renewed for a similar period at the option of their holders.
Extendible notes
According to Generally Accepted Accounting Principles (GAAP), assets are generally shown on the financial statements at the higher of current market value or historical cost.
False
The common set of standards and procedures by which audited financial statements are prepared is known as the:
GAAP
Which of the following is (are) uses of cash? I. payment of a note payable II. repurchase of common stock III. granting of credit to a customer IV. sale of a fixed asset
I, II, and III only
Which of the following accounts are included in shareholders' equity? I. interest paid II. retained earnings III. paid in surplus IV. long-term debt
II and III only
Which of the following are included in current liabilities? I. note payable to a supplier in eighteen months II. debt payable to a mortgage company in nine months III. accounts payable to suppliers IV. loan payable to the bank in fourteen months
II and III only
Which of the following are included in current assets? I. equipment II. inventory III. accounts payable IV. cash
II and IV only
Balance sheet assets: I. always have a value equal to total liabilities minus shareholders' equity. II. are listed in order of increasing liquidity. III. represent items acquired with the use of liabilities and equity.
III only
Which one of the following statements is generally true regarding liquidity? A) Liquidity is detrimental to a firm because it allows the firm to pay its bills more easily, thereby avoiding financial distress. B) Liquidity is valuable to a firm because liquid assets can be sold quickly without much loss in value. C) Liquidity is valuable to a firm because a firm can borrow money using its liquid assets, such as a warehouse, as collateral. D) Assets are generally listed on a firm's balance sheet in the order of increasing liquidity. E) Liquid assets generally earn a large return, especially in comparison to illiquid assets
Liquidity is valuable to a firm because liquid assets can be sold quickly without much loss in value.
The cash flows from operating activities section of the statement of cash flows considers
N/A
In the statement of cash flows, retained earnings are handled through the adjustment of which two accounts?
Net profits and dividends.
Earnings available to common shareholders are defined as net profits
after taxes minus preferred dividends.
Accounts payable
amounts owed for credit purchases by the firm
Making financing decisions includes all of the following EXCEPT a) deciding which individual long-term sources are best at a given point in time. b) deciding which individual short-term sources are best at a given point in time. c) analyzing quarterly budget and performance reports. d) determining the appropriate mix of short-term and long-term financing.
analyzing quarterly budget and performance reports.
A firm has actual sales in November of $1,000 and projected sales in December and January of $3,000 and $4,000, respectively. The firm makes 10 percent of its sales for cash, collects 40 percent of its sales one month following the sale, and collects the balance two months following the sale. The firm's total expected cash receipts in January
are $2,100.
Time-series analysis is often used to
assess developing trends
The ________ is useful in evaluating credit and collection policies.
average collection period
The changes in current assets relative to current liabilities over a period of time are called the:
change in net working capital.
The ________ feature allows the bondholder to change each bond into a stated number of shares of stock.
conversion
Which of the following legal forms of organization's income is NOT taxed under individual income tax rate?
corporation
Agency costs include all of the following EXCEPT
cost of goods sold
The inventory turnover ratio is measured as:
cost of goods sold divided by inventory.
The quick ratio is measured as:
current assets minus inventory, divided by current liabilities.
The two basic measures of liquidity are
current ratio and quick ratio ?????? (not inventory turnover and current ratio)
The lower the fixed-payment coverage ratio, the lower is the firm's financial leverage.
false
________ is a term used to describe the magnification of risk and return introduced through the use of fixed cost financing such as preferred stock and long-term debt.
financial leverage
A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive
general and administrative expenses.
The higher the degree of financial leverage employed by a firm, the:
greater the amount of debt incurred.
Higher cash flow and greater risk
have an inverse effect on share price.
Payment of interest required only when earnings are made available from which to make a payment is characteristic of a(n)
income bond
________ are commonly issued in the reorganization of a failed or failing firm
income bonds
The financial statement summarizing a firm's performance over a period of time is the:
income statement
The pro forma accumulated retained earnings account on the balance sheet is projected to ________. (See Table 4.4)
increase $57,000
Dana Dairy Products had a ________ degree of financial leverage than the industry standard, resulting in ________. (See Table 3.2)
lower; lower return on equity
An effective ethics program can have all of the following positive benefits, EXCEPT a) gain the loyalty, commitment, and respect of the firm's stakeholders. b) maintain a positive corporate image and build shareholder confidence. c) making sure violations are penalized, while at the same time not subjecting the employee to publicity. d) reduce potential litigation and judgment costs.
making sure violations are penalized, while at the same time not subjecting the employee to publicity.
The major factor(s) affecting the cost, or interest rate, on a bond is (are) its
maturity. size of the offering. issuer risk. basic cost of money.
The three summary ratios basic to the DuPont system of analysis are
net profit margin, total asset turnover, and equity multiplier.
Nico bought an investment one year ago and just calculated his return on investment. He found that his purchasing power had increased by 15 percent as a result of his investment. If inflation during the year was 4 percent, then Nico's
nominal return on investment is more than 15 percent.
Managing the firm's assets includes all of the following EXCEPT a) inventory. b) notes payable. c) fixed assets. d) accounts receivable.
notes payable
Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms, all else being the same.
older; newer
_____ refers to the cash flow that results from the firm's ongoing, normal business activities.
operating cash flow
Statement of Cash Flows
provides a summary of the firm's operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period
Statement of Retained Earnings
reconciles the net balance earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and the end of that year
Stockholder's Report (Annual Report)
report that summarizes and documents the firm's financial activities during the past year
An example of a standard debt provision is the
requirement to pay taxes and other liabilities when due.
Key inputs to short-term financial planning are
sales forecasts, and operating and financial data
The wealth of the owners of a corporation is represented by
share value
The primary concern of creditors when assessing the strength of a firm is the firm's
short-term liquidity
In a corporation, the members of the board of directors are elected by the
stockholders
Additions to net working capital over the course of a year can be computed by:
subtracting beginning NWC from ending NWC.
The long-term debts of a firm are liabilities:
that do not come due for at least 12 months
The weakness of the judgmental approach to preparing a pro forma balance sheet is
the assumption that the values of certain accounts can be forced to take on desired levels.
The depreciable value of an asset, under MACRS, is
the full cost including installation costs
As an outstanding bond approaches maturity, the price of the bond will always trend toward par value until, at maturity, the bond is worth its face value.
true
Operating financial plans are planned short-term financial actions and the anticipated financial impact of those actions.
true
Publicly-owned corporations are required by the Securities and Exchange Commission (SEC) and individual state securities commissions to provide their stockholders with an annual stockholders' report.
true
The firm's creditors are primarily interested in the short-term liquidity of the company and its ability to make interest and principal payments.
true
The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.
true
A firm has net working capital of $400, net fixed assets of $2,400, sales of $6,000, current liabilities of $800. How many dollars worth of sales are generated from every $1 in total assets?
$1.67 Total asset turnover = $6,000 [($400 + $800) + $2,400] = 1.67; Every $1 in total assets generates $1.67 in sales.
Notes payable for CEE in 2010 was ________. (See Table 3.1)
$10,609
The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is
$126
Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 14 percent.
$131,065
Jia borrows $50,000 at 10 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year loan payment is
$15,773
At the end of May, the firm has an ending cash balance of ________. (See Table 4.3)
$16,750
Accounts receivable for CEE in 2010 was ________. (See Table 3.1)
$19,861
A firm has common stock of $100, paid-in surplus of $300, total liabilities of $400, current assets of $400, and fixed assets of $600. What is the amount of the shareholders' equity?
$600 Shareholders' equity = $400 + $600 - $400 = $600 (Note: The amount of retained earnings is not provided, so you must use total assets minus total liabilities to derive the correct answer.)
Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?
$67,800
The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is
$71,154.
The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is
$75,401.
Nico Corp issued bonds bearing a coupon rate of 12 percent, pay coupons semiannually, have 3 years remaining to maturity, and are currently priced at $940 per bond. What is the yield to maturity?
14.54%
How many years would it take for Jughead to save an adequate amount for retirement if he deposits $2,000 per month into an account beginning today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement?
14.9 years
What is the return on equity for 2005?
16.2 percent
Suppose Nu-Drugs, Inc. just received a patent on a new drug for diabetes. This patent is considered an intangible fixed asset.
True
There is a tradeoff between the advantages of liquidity and forgone potential profits.
True
If a company's managers are NOT owners of the company, then they are
agents
Economic theories that the financial manager must be able to utilize for efficient business operations, include a) supply-and-demand analysis. b) marginal analysis. c) all of these. d) profit-maximizing strategies. e) price theory.
all of these
The key output(s) of the short-run financial planning process are a(n)
cash budget, pro forma income statement, and pro forma balance sheet.
The return expected from an asset is fully defined by its
cash flow and timing
To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically
charges a higher interest rate on long-term loans.
Interest rate risk and the time to maturity have a relationship that is best characterized as
direct
You are to determine the level of net capital spending by a firm. If you have the balance sheet and income statements, how would you go about your task?
ending net fixed assets minus beginning net fixed assets plus depreciation
The statement of cash flows includes all of the following categories EXCEPT: operating flows. investment flows. financing flows. equity flows
equity flows
Noncash items refer to:
expenses charged against revenues that do not directly affect cash flow.
A trustee is a paid party representing the bond issuer in the bond indenture.
false
An inverted yield curve is upward-sloping and indicates generally cheaper long-term borrowing costs than short-term borrowing costs.
false
As a rule, the necessary inputs to an effective financial analysis include, at minimum, the income statement and the statement of cash flow.
false
Cash budgets and pro forma statements are useful not only for internal financial planning but also are routinely required by the Internal Revenue Service (IRS).
false
If the net cash flow is less than the minimum cash balance, financing is required.
false
In cash budgeting, other cash receipts are cash receipts expected to result from sources other than sales. Items such as interest and dividend income, proceeds from the sale of equipment, depreciation expense, and stock and bond sales proceeds are examples of other cash receipts.
false
Managerial finance is concerned with design and delivery of advice and financial products to individuals, business, and
false
Non-cash charges are expenses that involve an actual outlay of cash during the period but are not deducted on the income statement.
false
Operating cash flow (OCF) is equal to the firm's net operating profits after taxes minus all non-cash charges.
false
Paid-in capital in excess of par represents the firm's book value received from the original sale of common stock.
false
Publicly-owned corporations are those which are financed by the proceeds from the treasury securities.
false
Return on total assets (ROA) measures the overall effectiveness of management in generating profits with the owners' investment in the firm.
false
Stock-purchase warrants are instruments that give their holder the right to purchase a certain number of shares of the firm's common stock at the market price over a certain period of time.
false
Stockholders expect to earn higher rates of return on investments of lower risk and lower rates of return on investments of higher risk.
false
The comparison of a particular ratio to the standard (industry average) is made in order to isolate any deviations from the norm. In the case of ratios for which higher values are preferred, as long as the firm that is being analyzed has a value in excess of the industry average it can be viewed favorably.
false
The corporate controller is the officer responsible for the firm's financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange.
false
The corporate treasurer is the officer responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
false
The financial analyst administers the firm's credit policy by analyzing or managing the evaluation of credit applications, extending credit, and monitoring and collecting accounts receivable.
false
The firm's free cash flow (FCF) represents the amount of cash flow available to pay bank loans after the firm has met all operating needs and after having paid for net fixed asset investments and net current asset investments.
false
The nominal rate of interest is equal to the sum of the real rate of interest plus the risk free rate of interest
false
Time-series analysis evaluates performance of firms at the same point in time using financial ratios.
false
Time-value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.
false
To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.
false
When computing an interest or growth rate, the rate will decrease the larger the future value, holding present value and the number of periods constant.
false
The less certain a cash flow, the ________ the risk, and the ________ the present value of the cash flow.
higher, lower
A firm with a total asset turnover lower than industry standard may have
insufficient sales
The statement of retained earnings reports all of the following EXCEPT
interest
The firm's final sales forecast is usually a function of
internal and external factors in combination
Inflation can distort
inventory costs
The ________ measures the activity, or liquidity, of a firm's inventory.
inventory turnover
A projected excess cash balance for the month may be
invested in marketable securities
The two categories of ratios that should be utilized to assess a firm's true liquidity are the
liquidity and activity ratios
Shares of stock currently owned by a firm's shareholders are called ________.
outstanding shares
When valuing a bond, the characteristics of the bond that remain fixed are all of the following EXCEPT the
price
Another term sometimes applied to a common shareholder is a
residual owner of the firm.
The total asset turnover ratio is measured as:
sales divided by total assets
The key inputs for preparing pro forma income statements using the simplified approaches are the
sales forecast for the coming year and financial statements for the preceding year.
Balance Sheet
summary of a firm's financial position at a given point in time balances the firm's assets (what it owns) against its financing, which can be either debt or equity
Two frequently cited ratios of profitability that can be read directly from the common-size income statement are
the gross profit margin and the net profit margin.
Because the typical cash budget shows cash flows only on a monthly basis, the information provided by the cash budget is not necessarily adequate for ensuring solvency.
true
Development of pro forma financial statements help the financial manager to project the amount, if any, of external financing required to support a given level of sales as well as a basis for analyzing in advance the level of profitability and overall financial performance of the firm in the coming year.
true
Future value increases with increases in the interest rate or the period of time funds are left on deposit.
true
In partnerships, owners have unlimited liability and may have to cover debts of other less financially sound partners.
true
It would be correct to define Operating Cash Flow (OCF) as net operating profit after taxes plus depreciation.
true
Net fixed assets represent the difference between gross fixed assets and the total expense recorded for the depreciation over then entire lives of the firm's fixed assets.
true
Restrictive covenants, coupled with standard debt provisions, allow the lender to monitor and control the borrower's activities in order to protect itself against increases in borrower risk.
true
Since the differences in the composition of a firm's current assets and liabilities can significantly affect the firm's "true" liquidity, it is important to look beyond measures of overall liquidity to assess the activity (liquidity) of specific current accounts.
true
The Financial Accounting Standards Board (FASB) Standard No. 52 mandates that U.S.-based companies translate their foreign-currency-denominated assets and liabilities into dollars using the current rate (translation) method.
true
The MACRS depreciation method requires use of the half-year convention. Assets are assumed to be acquired in the middle of the year and only one-half of the first year's depreciation is recovered in the first year.
true
The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days' sales in inventory.
true
The corporate controller typically handles the accounting activities, such as tax management, data processing, and cost and financial accounting.
true
The length of the maturity on a bond offering affects its cost. In general, the longer the maturity, the higher the cost.
true
The liquidity of a business firm refers to the solvency of the firm's overall financial position.
true
The net fixed asset investment (NFAI) is defined as the change in net fixed assets plus depreciation
true
The nominal rate of interest is equal to the sum of the real rate of interest plus an inflation premium plus a risk premium.
true
The use of differing accounting treatmentsespecially relative to inventory and depreciationcan distort the results of ratio analysis, regardless of whether cross-sectional or time-series analysis is used.
true
The value of a bond that pays semiannual interest is greater than that on an otherwise equivalent annual coupon interest paying bond.
true
To assess whether any developments have occurred that are contrary to the company's financial policies, the financial manager should pay special attention to both the major categories of cash flow and the individual items of cash inflow and outflow.
true
Under the basic MACRS procedures, the depreciable value of an asset is its full cost, including outlays for installation.
true
When computing an interest or growth rate, the rate will increase the larger the future value, holding present value and the number of periods constant.
true
Yield to maturity (YTM) is the rate investors earn if they buy the bond at a specific price and hold it until maturity.
true
