chapter 2 finance

Shareholders' equity represents:

a residual claim against the firm's total assets.

What is depreciation?

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

Assets can be categorized as:

Tangible and intangible assets. Current and fixed assets.

The cash flow that results from the firm's day-to-day activities of producing and selling is called:

The cash flow that results from the firm's day-to-day activities of producing and selling is called: Operating cash flow

Financial leverage refers to a firm's:

Use of debt in its capital structure.

Net capital spending is negative when Blank______

a firm sold off more assets than it purchased.

Which of the following is a current asset? Multiple choice question. accounts payable accrued expense. equipment inventory

inventory

Net working capital will be negative when current assets Blank______ current liabilities.

less than

The Blank______ tax rate is the tax rate paid on the next dollar of income.

marginal

The price at which willing buyers and sellers would trade is called Blank______ value.

market

Costs incurred during a particular time period that might be reported as selling, general, and administrative expenses are also known as Blank______.

period costs.

Physical assets are termed:

tangible assets

True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.

False.

On a balance sheet, total assets must always equal total liabilities plus:

Shareholders' equity.

Liquidity has two dimensions, which are the ability to:

quickly convert assets into cash without significant loss in value.

Shareholders' equity equals Blank______.

total assets minus total liabilities

The last item (or "bottom line") on the income statement is typically the:

Net Income

In practice, accountants tend to classify costs as either:

Product; period costs

A balance sheet reflects a firm's:

accounting value on a specific date.

Liquidity refers to the ease of changing:

assets to cash.

A company's Blank______ tax rate is its tax bill divided by its total taxable income, and its Blank______ tax rate is the tax rate it pays on the next dollar of income.

average; marginal

The purpose of a(n) Blank______ is to measure performance over a set period of time.

income statement

Which of the following is not a component of cash flow from assets? Multiple choice question. capital spending operating cash flow financing expenses change in net working capital

financing expenses are not a component.

Current assets are defined as assets that can be turned into cash within:

12 months.

U.S. corporations pay tax at a rate of percent. (Enter number only.)

21%

Depreciation is the accountant's estimate of the cost of:

Equipment Fixed assets

Which of the following are classified as liabilities on a firm's balance sheet?

Accounts payable Long-term debt

Net income refers to income earned:

After interest and taxes.

Noncash items do not affect:

Cash flow.

Which of the following are components of cash flow from assets?

Change in net working capital Capital spending Operating cash flow

The more debt a firm has, the greater its:

Degree of financial leverage.