Chapter 2 Quiz
The common set of standards and procedures by which audited financial statements are prepared is know as the
Generally Accepted Accounting Principles
Which one of the following statements concerning net working capital is correct?
Net working capital increases when inventory is sold for cash at a profit
Which one of the following statements concerning net working capital is correct?
a decrease in the cash balance may or may not decrease net working capital
Which one of the following accounts is the most liquid?
accounts receivable
The ___ tax rate is equal to total taxes divided by total taxable income
average
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
balance sheet
The book value of a firm is:
based on historical cost
The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the
cash flow from assets
The cash flow related to interest payments less any net new borrowing is called the
cash flow to creditors
Net working capital is defined as
current assets minus current liabilities
Cash flow to stockholders is defined as:
dividend payments less net new equity raised
Noncash items refer to:
expenses which do not directly affect cash flow
Cash flow from assets is also known as the firm's
free cash flow
Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?
good reputation of the company
The higher the degree of financial leverage employed by a firm, the:
higher the probability that the firm will encounter financial distress
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
income statement
The percentage of the next dollar you earn that must be paid in taxes is referred to as the ___ tax rate
marginal
Which one of these is most apt to be a fixed cost?
office salaries
Which term relates to the cash flow which results from a firm's ongoing, normal business activities?
operating cash flow
Depreciation:
reduces both taxes and net income
Shareholder's equity:
represents the residual value of a firm
Which one of the following will increase the value of a firm's net working capital?
selling inventory at a profit
Which one of the following must be true if a firm had a negative cash flow from assets?
the firm utilized outside funding
Which one of the following is classified as an intangible fixed asset?
trademark