Business Finance Chapter 3

If the Federal marginal tax bracket is 34%, the state marginal tax bracket is 5%, and the local marginal tax bracket is 1%, how much money will a corporation keep if it makes another $1,000,000 in taxable income?

$,

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

$115

If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is

$20

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

If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:

-$50

Long-term liabilities represent obligations of the firm lasting over

1 year

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

12

According to the originators of the current US corporate tax code, the only rates are

15%, 25%, 34%, 35%

What does stockholders' equity represent?

A residual claim against the firm's assets

What is depreciation?

A systematic expensing of an asset based on the asset's estimate life

A customer has yet to pay the bill for products purchased from Firm A on credit. This customer's trade credit is recorded in which of Firm A's balance sheet accounts?

Accounts receivable

Rank the ease (from easiest to hardest) of turning the following assets into cash

Cash equivalents, accounts receivable, inventory, plant and equipment

True or False: for financial analysis, financial statements and accounting numbers are more important than cash flows

False

What does GAAP stand for?

Generally accepted accounting principles

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

Operating cash flow, capital spending, change in net working capital

_____ costs change as the output of the firm changes

Variable

A balance sheet reflects a firm's

accounting value on a specific date

In the long-run, costs may be considered as

all variable

Net working capital will be negative when current assets _____ current liabilities

are less than

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 it pays on the next dollar of income

average; marginal

On the balance sheet, assets are listed at their _____ value

book

Which of the following are classified as fixed assets on the balance sheet?

buildings, trademarks, patents

Non-cash items do not affect

cash flow

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

cash flows

Which one of the following is true?

cash flows can be derived from financial statements

The cash flow identity states cash flow from assets equals cash flows to

creditors and stockholders

Net working capital equals

current assets minus current liabilities

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

earnings management

Depreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produced from owning it

equipment and fixed assets

The GAAP matching principle requires revenues to be matched with

expenses

Non-cash items are ____ that ____ cash flow

expenses; do not directly affect

Marginal tax rates are the most important tax rates because

financial decisions are usually based on new cash flows, incremental cash flows are taxed at marginal tax rates

Under GAAP, assets are generally carried on a firm's balance sheet at

historical cost, book value

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

income statement

Cash flow to creditors equals

interest paid minus net new borrowing

Period costs are the costs that are allocated to a specific _____

interval of time

For a mature firm, operating cash flow

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

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

long-term debt, accounts payable

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

market

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

net income

What are two ways in which financial accountants usually classify costs?

product costs, period costs

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

shareholder's equity

Assets can be categorized as

tangible and intangible assets, current and fixed assets

Changes in capital spending can be negative if

the firm sold more assets than it purchased

On which side of the balance sheet do liabilities appear?

the right side

What should you keep in mind when examining an income statement?

time and costs, GAAP, cash versus non-cash items

Common stockholders are entitled to the difference between ____ and ____

total assets; total liabilities

Free cash flow is better described as

total distribute cash flow

True or false: operating cash flow does not include depreciation or interest

true

Financial leverage refers to a firm's

use of debt in its capital structure

When is revenue recognized on an income statement?

when the earnings process is virtually completed, when the exchange of goods or services is completed