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