Finance Chapter 2
Which is included in the market value of a firm, but not in the book value?
Reputation of a firm
An increase in which of the following will increase net income?
Revenue
Liquidty
Speed and ease with which an asset can be converted to cash at or near market value
Delivery Trucks are classified as:
Tangible fixed assets
Marginal Tax Rate
Tax rate that applies to the next dollar of taxable income that a firm earns
LEAST likely to have book value near its market value
Fixed Assets-for many companies, intangible fixed assets such as good management, a good reputation, talented employees, and the company brand name, are not even shown on the balance sheet
Another name for cash flow from assets:
Free Cash Flow
Cash flow from assets can also be called
Free Cash Flow
Accounting principles dictate that assets should be placed on the balance sheet at:
Historical Cost-Assets are placed on balance sheet at the amount paid for them when they are purchased. Referred to as the asset's historical cost, book value, or carrying value.
Accounting Statement that measures the revenues, expenses, and net income of a firm over a period of time is called:
Income Statement
Retiring (paying off) debt will:
Increase cash flow to creditors
Increase Cash Flow from Assets
Increase in operating cash flow (OCF)
An issue of new stock would
Increase net new equity raised and decrease cash flow to stockholders
Cash Flow to creditors is defined as
Interest paid - net new borrowing
Least Liquid Current Asset is typically considered to be:
Inventory-b/c it may be subject to obsolescence, and will likely incur the greatest loss in value if it must be sold quickly
Decrease cash flow to creditors
Issue New Debt
Decrease cash flow to stockholders
Issue new stock
Which of the following will decrease the net working capital of a firm?
Making a payment on a long term debt
Which of the following statements concerning market and book values is correct?
Market value tends to provide a better guide to the actual worth of an asset than does the book value
Which decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?
Noncash Item
Cash Flow from assets:
Operating Cash Flow - change in net working capital - net capital spending
Cash flow to stockholders is defined as
dividends paid - net new equity raised
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:
had to decrease
An increase in operating cash flow will
increase cash flow from assets
Sequence on the Balance Sheet
-Cash -Short Term Investments -Accounts Receivables -Inventory -Fixed Assets -Accounts Payable -Notes Payable -Long-term Debt -Common Stock
Decrease cash flow from assets
-Increase in net working capital -Purchase fixed assets
Increase cash flow to stockholders
-Repurchase stock -Pay dividends
Increase cash flow to creditors
-Retire (pay off) debt -Pay interest expense
Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle?
-The earnings process is virtually complete -The value of a sale can be reliably determined
Which is included in net working capital
Accounts payable
Which of the following will decrease the liquidity level of a firm?
Cash purchase of inventory
Current assets are expected to:
Convert to cash over the next 12 months
Which is an intangible fixed assets
Copyright
New Working Capital
Current Assets-Current Liabilities
A purchase of new fixed assets will:
Decrease cash flow from assets
An increase in current assets
Decrease cash flow from assets
