Finance 461:

Residual Value is the amount left over after paying:

Bondholders Accounts Payable Other debt holders

On the balance sheet, assets are listed according to their:

Book Value

What are current assets:

Cash Accounts receivable Inventory

Rank the ease (from easiest to hardest) of turning the following assets into cash.

Cash Equivalents Accounts Receivable Inventory Plants and Buildings

The statement of cash flows explains changes in_____.

Cash and equivalents

The cash flow identity reflects the fact that:

Cash flow from the firms assets equals the total cash flow to creditors and cash flow to stockholders A firm generates cash through it's various activities Cash is either used to produce the product or service, pay creditors or pay out the owners of the firm

Net Working Capital plus Current Liabilities equal:

Current Assets

Net working capital plus current liabilities equal:

Current assets

A long term liability represents a(n):

Debt that is not due in the coming year

What is an example of a noncash item on the income statement:

Depreciation

Cash flow to stockholders equal:

Dividends paid minus net new equity raised

If a firm's net working capital is $120 in 2014 and $100 in 2013, then the change in net working capital is:

Ending NWC 120.00 (-) Beginning NWC 100.00

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

False

Costs that do not change in the short run arise because of _______.

Fixed commitments

What is kept in mind when examining the net income:

GAAP Time and Costs Cash VS. Non-cash items

What does GAAP stand for:

Generally Accepted Accounting Principles

Assets are listed on the balance sheet in which order:

In order of decreasing liquidity

How are assets on a balance sheet listed:

In order of decreasing liquidity

The purpose of a(n)_________ is to measure performance over a set period of time.

Income Statement

What is true about the difference between the income statement and cash flows and outflows:

Income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS Cost of raw materials purchased on credit are accounts payable rather than cash outflows until they are paid, which may be in a different period Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period

Increasing its non-cash liquid assets will enable a firm to do which of the following?

Increase it's ability to meet short-term obligations Increase it's ability to avoid financial distress

The use of financial leverage can:

Increase the chance of financial distress and business failure Greatly magnify both gains and losses Increase the potential reward for investors

Assets are recorded at historical cost, not market value, because:

It is hard to keep up with the market value

Why is positive net working capital important?

It means the firm should have sufficient cash to meet its current obligations.

What are fixed assets:

Land Plant Buildings

What is the primary concern for a bank lending funds to a business for the short term:

Liquidity

Whose responsibility is it to create value for a firm:

Management

The _________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as revenue from selling that good or service.

Matching

What complies with GAAP:

Matching revenues with expenses

The accounting equation shows that stockholder's equity equals assets ________ liabilities.

Minus

________ income is money earned after interest and taxes.

Net

Book value of assets is generally:

Not what the assets are actually worth

What is classified as liabilities on the balance sheet:

Notes Payable Accounts Payable

A company's _______ cash flows reflect whether it's cash flows from business operations can cover it's everyday cash outflows

Operating

An income statement reflects activity that occurs_______ while a balance sheet reflects values _________.

Over a period of time; as of a specific date

Net capital spending is equal to ending net fixed assets minus beginning net fixed assets__________.

Plus depreciation

What is a variable cost in the short run:

Raw materials used in production

Examples of short run fixed costs:

Rent Bond Interest

On which side of the balance sheet do

Right side

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

Statement of Cash Flows

The last (residual) claimants to be paid by a firm are the

Stockholders

Free cash flow is better described as:

Total distributable cash flow

An increase in depreciation expense lowers net income: True or False

True

Most importantly, assets provide ______ to the firm.

Value

In the long run, all costs are

Variable

When is revenue recognized on the income statement:

When the value of an exchange of goods and services can be readily redeemed When the earnings process is virtually complete

Liquidity refers to the ease of changing

assets to cash

Noncash items are expense directly affect _________ but do not directly affect _________.

net income; cash flow

Accountants usually distinguish between _______ costs and _______ costs.

product;period

If a firm's current assets are $100 and it's current liabilities are $80, then it's net working capital is:

20.00 Current Assets 100.00 (-) Current Liabilities 80.00

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 Ending Net Fixed Assets 100.00 (-) Beginning Net Fixed Assets 60.00 (+) Depreciation

What does stockholder's equity represent:

A residual claim against the book value of the firm's assets (The book value of the firm's assets less the book value of it's liabilities)

What does a balancesheet reflect about a firm:

Accounting value on a specific date

What is classified as liabilities on a firm's balance sheet:

Accounts Payable Notes Payable

What is considered the most liquid:

Accounts Receivable

When a customer purchases an item on credit, the purchase amount is recorded by the seller in what account(s):

Accounts Receivable

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

Assets

What is the correct version of the balance sheet equation:

Assets = Liabilities + Stockholder's Equity

If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:

-50 Interest Paid 100.00 (-) Net New Borrowing 150.00