finance chapter 2

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

shareholder's equity

Physical assets are termed ______________ assets.

tangible

The market value of an item is:

the cash value you'd get if you sold it

Cash flow refers to _____.

the difference between the number of dollars that came in and the number that went out

U.S. corporations pay tax at a rate of _______ percent.

21%

Which of the following is NOT a component of cash flow from assets?

Financing expenses

A firm's balance sheet

How much debt is used to finance the firm? What is the total amount of assets the firm owns?

How is the average income tax rate computed?

Total tax bill / Total taxable income

A balance sheet reflects a firm's:

accounting value on a specific date

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

marginal

Balance Sheet Equation

Assets = Liabilities + Stockholders' Equity

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

OCF

According to GAAP, when is income reported?

When it is earned or accrued

Net earnings refers to income earned ______.

after interest and taxes

In the long-run, costs may be considered as ________.

all variable

Non-cash items do not affect

cash flow

In finance, the value of a firm depends on its ability to generate ______.

cash flows

The more debt a firm has, the greater its:

degree of financial leverage

Net capital spending is equal to the change in net fixed assets plus:

depreciation

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

When a firm smooths earnings to please investors, it is called

earnings management

Cash flow to creditors equals:

interest paid minus net new borrowing

For a mature firm, operating cash flow:

is usually positive, is a sign of trouble if negative over a long period of time

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

market Value

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

net income

Earnings management is a controversial practice in which corporations ________ or ___________ their earnings to "smooth out" dips and surges and keep investors calm.

overstate; understate

According to GAAP, when is revenue recognized on an income statement?

-Recognize revenue when it is fully earned. When the earnings process is virtually completed When the value of an exchange of goods or services is known or reliably determined

Which of the following is an example of a non-cash item on an income statement?

Depreciation

A positive operating cash flow indicates that the firm is generating enough cash to:

pay everyday cash outflows.

Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ____.

plus depreciation

Liquidity has two dimensions which are the ability to:

quickly convert assets into cash without significant loss in value

Financial leverage refers to a firm's _________.

use of debt in its capital structure

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

Operating cash flow, Capital spending, Change in net working capital

The short run is ______.

an imprecise period of time

Liquidity refers to the ease of changing _____.

assets to cash

Liquidity refers to the ease of changing _________.

assets to cash

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

average; marginal

Assets can be categorized as

current and fixed assets & tangible and intangible assets

Net Working Capital (NWC)

current assets - current liabilities

True or false: With the passage of the Tax Cuts and Jobs Act of 2017, corporate tax rates went up.

false