FINANCE- Chapter 2
What is depreciation?
a systematic expensing of an asset based on the asset's estimated life
Net income refers to money earned
after interest and taxes
Liquidity refers to:
the speed and case with which an asset can be converted to cash
What does stockholder's equity represent?
A residual claim against the book value of the firm's assets
The cash flow identity reflects the fact that: A. cash is either used to produce the product or service, pay creditors or pay out the owners of the firm B. a firm generates cash through its various activities C. cash flow from the firm's assets equal the cash flow paid to suppliers of capital to the firm D. operating cash flow is the same as operating income
A, B, C
How are assets on a balance sheet listed?
In order of decreasing liquidity
The balance sheet only shows ___________, rather than market value
costs
Depreciation is the accountant's estimate of the cost of _______________ used up in the production process
equipment
The use of financial leverage can:
greatly magnify both gains and losses increase the chance of financial distress and business failure increase the potential reward for investors
The marginal tax rate is:
the tax rate paid on the next dollar of income
Which of these is NOT shown on a balance sheet? A. Propriety assets B. Deferred taxes C. Good management D. Favorable economic conditions
Propriety assets, Good management, Favorable economic conditions