LS Ch. 2

the short run is: a. an imprecise amount of time b. defined as one month c. defined as six months d. defined as one year

a. an imprecise period of time (the short run is the period during which some equipment, resources, and commitments are fixed)

if dividends are $100, stock sold is $10, and stock repurchased is $25, what is the cash flow to stockholders?

$115 (cash flow to stockholders = dividends paid- net new equity) 100- (10-25)

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

rank the ease (from easiest to hardest) of turning the following assets into cash: accounts receivable, inventory, cash equivalents, plant and equipment

1. cash equivalents 2. accounts receivable 3. inventory 4. plant and equipment

according to the originators of the current U.S corporate tax code, the only rates are: a. 35% b. 40% c. 34& d. 25% e. 15%

A, C, D and E 35, 34, 25, 15%

what are the two ways in which financial accountants usually classify costs? a. variable costs b. period costs c. product costs d. fixed costs

B and C b. period costs c. product costs

a balance sheet reflects a firm's: a. accounting value on a specific date b. earnings per share over an unspecified time c. economic value at a specific time d. income over a specific time period

a. accounting value on a specific date

physical assets are termed ____ assets a. tangible b. current c. long-term d. intangible

a. tangible

shareholders' equity equals:

assets MINUS liabilities

when a firm smooths earnings to please investors, it is called a. discretionary reporting b. fair market accounting c. earnings management d. earnings smoothing

c. earnings management

cash flow to creditors equals: a. stock repurchased plus interest paid b. interest plus dividends paid c. interest paid minus net new borrowing d. interest paid plus net new borrowing

c. interest paid minus net new borrowing

what does stockholders equity represent? a. a fixed claim against the firm's assets b. a residual claim against the firm's liabilities c. a fixed claim against the firm's liabilities d. a residual claim against the firm's assets

d. a residual claim against the firm's assets (it's what remains after obligations are discharged)

the more debt a firm has, the greater its a. degree of operating leverage b. book value c. retained earnings d. degree of financial leverage

d. degree of financial leverage

net capital spending is equal to the change in net fixed assets minus beginning net fixed assets plus: a. retained earnings b. dividends c. notes payable d. depreciation

d. depreciation

the price at which willing buyers and sellers would trade is called _____ value a. accounting b. carrying c. book d. market

d. market

_____ costs change as the output of the firm changes a, fixed b. overhead c. depreciation d. variable

d. variable

the last item (or "bottom line") on the income statement is typically the _____.

net income

the cash flow identity states that cash flow from assets equals cash flows to ______. a. creditors and bondholders b. creditors and stockholders c. equity investors and the government d. equity investors and stockholders

b. creditors and stockholders

net working capital equals _____. a. total assets minus total liabilities b. current assets minus current liabilities c. current liabilities minus current assets d. fixed assets minus long-term liabilities

b. current assets minus current liabilities

non-cash items do not affect: a. cash flow b. earnings per share c. retained earnings d. net income

a. cash flow

non-cash items are ____ that ____ cash flow. a. expenses; do not directly affect b. revenues; do not directly affect c. expenses; decrease d. expenses; increase

a. expenses; do not directly affect

on a balance sheet, total assets must always equal total liabilities plus: a. retained earnings b. fixed assets c. shareholders' equity d. net working capital

c. shareholders' equity

common stockholders are entitled to the difference between _____ and _____. a. total assets; long-term debt b. current assets; current liabilities c. total assets; total liabilities

c. total assets; total liabilities

free cash flow is better described as _____. a. fixed asset investments b. dividend and interests payments c. total disputable cash flow d. non-cash expenses

c. total disputable cash flow

on the balance sheet, assets are listed as their ___ value. a. book b. estimated c. economic d. market

a. book

the short run is a period when there are ____ costs a. both fixed and variable b. only variable c. only fixed costs d. only cash

a. both fixed and variable

depreciation is the accountant's estimate of the cost of _____ used in the production process with the benefits produced from owning it. a. equipment b. fixed assets c. cash d. inventory

a. equipment b. fixed assets

the cash flow identity states that cash flows from ____ should equal cash flows to creditors and equity investors. a. operations b. assets c. changes in net working capital d. net working capital

assets

which of the following are classified as liabilities on a firm's balance sheet? a. marketable securities b. accounts payable c. long-term debt d. accounts receivable

b. accounts payable c. long-term debt

liquidity has two dimensions which they are able to: a. quickly convert assets into cash w/out significant loss in value b. convert assets into cash so that the value is maximized c. quickly convert assets into cash regardless of loss in value

a. quickly convert assets into cash w/out significant loss n value

long-term liabilities represent obligations of the firm lasting over _____ a. 6 months b. 1 year c. 1 month d. 90 days

b. 1 year

in the long-run, costs may be considered as ____. a. all fixed b. all variable c. some fixed and some variable

b. all variable

under GAAP, assets are generally carried on a firm's balance sheet at: a. market value b. historical cost c. book value d. salvage value

b. historical cost c. book value

on which side of the balance sheet do liabilities appear? a. the right side b. neither side c. the left side

a. the right side

which of the following are components of cash flow from assets? a. change in net working capital b. net new equity c. operating cash flow d. capital spending e. net new borrowin

a. change in net working capital c. operating cash flow d. capital spending

cash flows to stockholders equals: a. stock repurchased plus dividends paid b. net new equity raised minus dividends paid c. dividends paid plus new net equity raised d. dividends paid minus net new equity raised

d. dividends paid minus net new equity raised

the _____ tax rate is the tax rate paid on the next dollar of income a. average b. minimum c. maximum d. marginal

d. marginal

the purpose of a(n)______ is to measure performance over a set period of time. a. balance sheet b. income statement c. prospectus d. statement of cash flows

income statement

assets can be categorized as (select all that apply) a. fixed and variable assets b. tangible and intangible assets c. current and fixed assets d. short-term and long-term equity

b. tangible and intangible assets c. current and fixed assets

for a mature firm, operating cash flow: a. is a sign of trouble if negative over a long period of time b. cannot be positive for long periods c. is usually negative d. is usually positive

A and D a. is a sign of trouble if negative over a long period of time d. is usually positive

what should you keep in mind when examining an income statement? a. gaap b. cash versus non-cash items c. asset composition d. time and costs

A, B, and D a. GAAP b. cash versus non-cash items d. time and costs

which of the following are classified as fixed assets on the balance sheet? a. patents b. buildings c. cash d. trademarks

A, B, and D a. patents b. buildings d. trademarks

in finance, the a value of a firm depends on its ability to generate ______. a. cash flows b. earnings per share c. net working capital d. net income

a. cash flows

when is revenue recognized on an income statement? a. after the related expenses are paid in full b. when cash has been received for the sale c. when the exchange of goods or services is completed d. when the earnings process is virtually completed

c. when the exchange of goods or services is completed d. when the earnings process is virtually completed

what is depreciation? a. a systematic expensing of an asset based on the asset's estimated life b. the market value of an asset minus the asset's book value c. the current market value of an asset minus the asset's initial cost d. a systematic cash contribution to a company's checking account to fund a new asset

a. a systematic expensing of an asset based on the asset's estimated life

marginal tax rates are the most important tax rates because: a. because the IRS says so b. financial decisions are usually based on new cash flows c. incremental cash flows are taxed at marginal tax rates d. financial decisions are usually based on previous changes in cash flows

b. financial decisions are usually based on new cash flows c. incremental cash flows are taxed at marginal tax rates

current assets usually ____ exceed current liabilities in a healthy firm a. always b. usually c. never

b. usually

who is entitled to the residual value of a firm's cash flows? a. shareholders b. occupy wall street protestors c. the internal revenue service d. bondholders

a. shareholders

according to GAAP, when is income reported? a. when it is earned or accrued b. when cash payment is received c. when it is first anticipated d. whenever the firm decides to report it

a. when it is earned or accrued