FIN3403 Chapter 2

Which one of the following is classified as an intangible fixed asset?

trademark

Which one of the following represents the most liquid assets?

$100 of inventory that is sold today for $100 cash

Which one of the following statements related to the cash flow to creditors is correct?

A positive cash flow to creditors represents a net cash out flow form the firm

The _____ tax rate is equal to total taxes divided by total taxable income

Average

The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:

Cash flows from assets

Net working capital is defined as:

Current Assets minus Current Liabilities

An increase in the depreciation expense will do which of the following?

Decrease Net Income Increase the cash flow from assets

Which of the following will increase the cash flow from assets, all else equal?

Decrease in net capital spending

The common set of standards and procedures by which audited financial statements are prepared is known as the:

Generally Accepted Accounting Principles

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

Income Statement

Which one of the following is NOT included in cash flow from assets?

Interest expense

Which of the following are current assets? I. patent II. inventory III. accounts payable IV. cash

Inventory, Cash

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 statements related to an income statement is correct?

Taxes reduce both net income and operating cash flow

Which of the following statements related to taxes is correct?

The marginal tax rate for a firm can be either higher than or the same as the average tax rate

Which of the following is (are) included in the market value of a firm but are excluded from the firms book value?

Value of: Management Skills The Firms Reputation Employees Experience Book Value is only: Value of a copyright

The book value of a firm is:

based on historical costs.

You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?

construction of a new restricted access highway located between the store and the surrounding residential areas

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 flows

Cash flow from assets is also known as the firm's:

free cash flow

Which one of the following accounts is the most liquid?

Accounts receivable

Depreciation:

Reduces both taxes and net income

Shareholder's equity:

Represents the residual value of a firm

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.

As of 2012 which one of the following statements concerning corporate income taxes is correct?

A firms tax is computed on an incremental basis.

Which one of the following statements is correct concerning a corporation with taxable income of 125,000?

An Increase in depreciation will increase operating cash flow

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 cash flow related to interest payments less any net new borrowing is called the:

Cash flows to creditors

Which one of the following is true according to Generally Accepted Accounting Principles?

Costs of goods sold are recorded based on the matching principle

For a tax-paying firm, an increase in ____ will cause the cash flow from assets to increase.

Depreciation

Which one of the following costs is most apt to be a fixed cost?

Depreciation

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 of the following are expenses for accounting purposes but are not operating cash flows for financial purposes? I. interest expense II. taxes III. costs of goods sold IV. depreciation

Interest Depreciation

Net Capital Spending:

Is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense

Which one of the following statements related to liquidity is correct?

Liquid assets are valuable to a firm

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 the following statements concerning net working capital is correct?

Net working capital increase when inventory is sold for cash at a profit

Which term relates to the cash flow which results from a firm's ongoing, normal business activities?

Operating Cash Flow

A positive cash flow to stockholders indicates which one of the following with certainty?

The dividends paid exceeded the net new equity raised

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 statements related to an income statement is correct? Assume accrual accounting is used.

The labor costs for producing a product are expensed when the product is sold.

Which of the following are included in current liabilities? I. note payable to a supplier in eight months II. amount due from a customer next month III. account payable to a supplier that is due next week IV. loan payable to the bank in fourteen months

Note Payable, Account Payable

Which one of these is most apt to be a fixed cost?

Office Salaries