Finance 461:
Residual Value is the amount left over after paying:
Bondholders Accounts Payable Other debt holders
On the balance sheet, assets are listed according to their:
Book Value
What are current assets:
Cash Accounts receivable Inventory
Rank the ease (from easiest to hardest) of turning the following assets into cash.
Cash Equivalents Accounts Receivable Inventory Plants and Buildings
The statement of cash flows explains changes in_____.
Cash and equivalents
The cash flow identity reflects the fact that:
Cash flow from the firms assets equals the total cash flow to creditors and cash flow to stockholders A firm generates cash through it's various activities Cash is either used to produce the product or service, pay creditors or pay out the owners of the firm
Net Working Capital plus Current Liabilities equal:
Current Assets
Net working capital plus current liabilities equal:
Current assets
A long term liability represents a(n):
Debt that is not due in the coming year
What is an example of a noncash item on the income statement:
Depreciation
Cash flow to stockholders equal:
Dividends paid minus net new equity raised
If a firm's net working capital is $120 in 2014 and $100 in 2013, then the change in net working capital is:
Ending NWC 120.00 (-) Beginning NWC 100.00
Operating cash flow includes capital spending and working capital requirements: True or False
False
Costs that do not change in the short run arise because of _______.
Fixed commitments
What is kept in mind when examining the net income:
GAAP Time and Costs Cash VS. Non-cash items
What does GAAP stand for:
Generally Accepted Accounting Principles
Assets are listed on the balance sheet in which order:
In order of decreasing liquidity
How are assets on a balance sheet listed:
In order of decreasing liquidity
The purpose of a(n)_________ is to measure performance over a set period of time.
Income Statement
What is true about the difference between the income statement and cash flows and outflows:
Income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS Cost of raw materials purchased on credit are accounts payable rather than cash outflows until they are paid, which may be in a different period Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period
Increasing its non-cash liquid assets will enable a firm to do which of the following?
Increase it's ability to meet short-term obligations Increase it's ability to avoid financial distress
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
Assets are recorded at historical cost, not market value, because:
It is hard to keep up with the market value
Why is positive net working capital important?
It means the firm should have sufficient cash to meet its current obligations.
What are fixed assets:
Land Plant Buildings
What is the primary concern for a bank lending funds to a business for the short term:
Liquidity
Whose responsibility is it to create value for a firm:
Management
The _________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as revenue from selling that good or service.
Matching
What complies with GAAP:
Matching revenues with expenses
The accounting equation shows that stockholder's equity equals assets ________ liabilities.
Minus
________ income is money earned after interest and taxes.
Net
Book value of assets is generally:
Not what the assets are actually worth
What is classified as liabilities on the balance sheet:
Notes Payable Accounts Payable
A company's _______ cash flows reflect whether it's cash flows from business operations can cover it's everyday cash outflows
Operating
An income statement reflects activity that occurs_______ while a balance sheet reflects values _________.
Over a period of time; as of a specific date
Net capital spending is equal to ending net fixed assets minus beginning net fixed assets__________.
Plus depreciation
What is a variable cost in the short run:
Raw materials used in production
Examples of short run fixed costs:
Rent Bond Interest
On which side of the balance sheet do
Right side
An official accounting statement that helps to explain the change in cash and cash equivalents is called the ______.
Statement of Cash Flows
The last (residual) claimants to be paid by a firm are the
Stockholders
Free cash flow is better described as:
Total distributable cash flow
An increase in depreciation expense lowers net income: True or False
True
Most importantly, assets provide ______ to the firm.
Value
In the long run, all costs are
Variable
When is revenue recognized on the income statement:
When the value of an exchange of goods and services can be readily redeemed When the earnings process is virtually complete
Liquidity refers to the ease of changing
assets to cash
Noncash items are expense directly affect _________ but do not directly affect _________.
net income; cash flow
Accountants usually distinguish between _______ costs and _______ costs.
product;period
If a firm's current assets are $100 and it's current liabilities are $80, then it's net working capital is:
20.00 Current Assets 100.00 (-) Current Liabilities 80.00
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 Ending Net Fixed Assets 100.00 (-) Beginning Net Fixed Assets 60.00 (+) Depreciation
What does stockholder's equity represent:
A residual claim against the book value of the firm's assets (The book value of the firm's assets less the book value of it's liabilities)
What does a balancesheet reflect about a firm:
Accounting value on a specific date
What is classified as liabilities on a firm's balance sheet:
Accounts Payable Notes Payable
What is considered the most liquid:
Accounts Receivable
When a customer purchases an item on credit, the purchase amount is recorded by the seller in what account(s):
Accounts Receivable
The cash flow identity states that cash flows from _______ should equal cash flows to creditors and equity investors.
Assets
What is the correct version of the balance sheet equation:
Assets = Liabilities + Stockholder's Equity
If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:
-50 Interest Paid 100.00 (-) Net New Borrowing 150.00