Financial Management Lecture 2
Under current accounting rules, plant and equipment appear on a company's balance sheet valued at replacement value.
False
Which of the following items is part of the computation of net operating working capital for purposes of determining free cash flow?
Accounts payable
Which of the following would be included in the calculation of net operating working capital?
Accounts payable and accruals
On an accrual basis income statement, revenues and expenses always match the firm's cash flow.
False
The income statement describes the financial position of a firm on a given date.
False
Which of the following would not be included as equity in a corporate balance sheet?
Cash
Which of the following would not be included as an asset on a corporate balance sheet?
Common stock
Who owns the retained earnings of a public firm?
Common stockholders
The income statement represents a snapshot of account balances at one point in time.
False
Which of the following does NOT represent cash outflows to the firm?
Depreciation
Which of the following would not be included as a liability in a corporate balance sheet?
Depreciation
You are about to determine your corporation's taxable income. Which of the below would not be included as a tax-deductible expense?
Dividend expense
Total equity on the balance sheet increases as dividends paid increases.
False
What is sales revenue, minus cost of goods sold and operating expenses, known as for income statement purposes?
EBIT
Which of the following best represents operating income?
Earnings before interest and taxes
A firm's balance sheet provides a representation of the current market value of the company.
False
An advantage of balance sheet numbers is that assets reflect current market values.
False
An income statement reports a firm's profit relative to its total investment in plant and equipment.
False
Cash flows from assets will always be less than cash flows from financing due to dividends.
False
Dividends paid to a firm's stockholders, both preferred and common stockholders, are tax-deductible to the paying company.
False
44. Which of the following represents an attempt to measure the earnings of the firm's operations over a given time period?
Income statement
Which of the basic financial statements is best used to answer the question, "How profitable is the business?"
Income statement
Which of the following is NOT included in the calculation of free cash flows?
Interest expense
Which of the following is the least liquid current asset?
Inventory
How does "free cash flow" differ from net profit?
It takes into consideration a firm's ongoing investment in working capital and fixed assets.
Fixed assets includes which of the below?
Land
Which of the following best represents the stream of income that is available to common stockholders?
Net profit after tax and after preferred dividend payments
Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)?
Operating income
Which of the following is NOT considered a fixed asset?
Patents
Which of the following best describes a balance sheet?
Reports the amount and composition of assets and liabilities at a specified point in time.
Which of the following is NOT included in operating income?
Taxes
A balance sheet is a statement of the financial position of the firm on a given date, including its asset holdings, liabilities, and equity.
True
Corporate income statements are usually compiled on an accrual, rather than cash, basis.
True
The balance sheet describes the financial position of a firm on a given date.
True
The balance sheet provides a statement of the firm's financial position.
True
The income statement provides a statement of results for the firm's operations.
True
The interest payments on corporate bonds are tax-deductible.
True
The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000.
True
Holding all other variables constant, which of the following will decrease total equity? An increase in:
dividends paid
58. Tax tables are based on ______ tax rates.
marginal
Free cash flow will increase with a decrease in __________.
tax rate
Stock that is repurchased by the issuing company is called:
treasury stock
