Finance 2000 chapter 2 homework

True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.

False

Which one of the following represents what a firm owns at a given point in time?

Its assets

refers to the speed and ease with which an asset can be converted to cash.

Liquidity

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.

Matching

Net working capital equals current assets ______ current liabilities.

Minus

On which side of the balance sheet do liabilities appear?

The right side

Which is true of taxes?

They can be one of the largest cash outflows a firm experiences.

How is the average income tax rate computed?

Total tax bill/Total taxable income

Most importantly, assets provide ______ to the firm.

Value

Which of these questions can be answered by reviewing a firm's balance sheet?

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

A long-term liability represents a(n) _____.

a debt that is not due in the coming year

A balance sheet reflects a firm's ______ value on a particular date.

accounting

Net income refers to money earned ______.

after interest and taxes

In the long run, ________ are variable.

all costs

Liquidity refers to the ease of changing _____.

assets to cash

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

book

Under GAAP, U.S. firms must carry assets at:

book value

The statement of cash flow explains changes in _____. Multiple choice question.

cash and equivalents

Noncash items do not affect _____.

cash flow

The total of cash flow to creditors and cash flow to stockholders is called _____.

cash flow from assets

The more debt a firm has, the greater its:

degree of financial leverage

Cash flow to stockholders equals ____.

dividends paid minus net new equity raised

The matching principle of GAAP requires revenues be matched with _____.

expenses

The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.

flat

Cash flow to stockholders is dividends paid_______ (minus/plus) net new equity raised.

minus

Noncash items are expenses that directly affect _____ but do not directly affect ______.

net income; cash flow

How is income defined?

revenue minus expenses

An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____.

statement of cash flows

Long-term liabilities are not due in the current year (from the date of the balance sheet).

true

True or false: Taxes can be a large cash outflow for a corporation.

true

In the long run, all costs are _____.

variable

Another name for short-term financial management is ___ management.

working capital

Assets can be described as items that _____.

- A firm owns - Provide market value to the firm - Generate revenue

The use of financial leverage can:

- Increase the chance of financial distress and business failure - Greatly magnify both gains and losses - Increase the potential reward for investors

The cash flow identity reflects the fact that:

-Cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. -A firm generates cash through its various activities -Cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.

10

The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.

21%

Which one of the following is true?

Cash flows can be derived from financial statements.