Finance Chapter 2 - Optional

Average Tax Rate

total taxes divided by total taxable income

What is included in a firms market value but yet is excluded from he firms accounting value?

Good reputation of the company

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?

Net working capital = total assets ($4900) - Fixed assets ($3200) - ST Debt ($1400) = $300

A firm has net working capital of $640. Long-term debt is $4,180 , total assets are $6,230 , and fixed assets are $3,910 , what is the amnt of total liabilities

current assets = total assets - fixed assets = $2,320 and Current liabilities = current assets - net working capital = $1,680 , so total liabilities = current liabilities + LT debt = $5,860

Noncash items

expenses which do not directly affect cash flows

Book Value of a firm

Based on historical cost

An increase in the depreciation expense will do what?

Decrease net income, and increase the cash flow from assets

Example of a liquid asset

$100 of inventory that is sold today for $100 cash

Depreciated

reduced both taxes and net income

At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?

Change in net working capital = ($122,418 - $103,718) - ($121,306 - $124,509) = $21903 Change in NWC = (end current assets - end current liabilities) - (beg. current assets - beg. current liabilities)

Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common stock increased by $1,200 and retained earnings decreased by $310. What is the net income for the year?

Net Income = $1300 + (-$310) = $990 (net income = dividends + RE)

Balance Sheet

The financial statement that shows the accounting value of a firms equity as of a particular date.