Finance Chapter 2

Which is included in the market value of a firm, but not in the book value?

Reputation of a firm

An increase in which of the following will increase net income?

Revenue

Liquidty

Speed and ease with which an asset can be converted to cash at or near market value

Delivery Trucks are classified as:

Tangible fixed assets

Marginal Tax Rate

Tax rate that applies to the next dollar of taxable income that a firm earns

LEAST likely to have book value near its market value

Fixed Assets-for many companies, intangible fixed assets such as good management, a good reputation, talented employees, and the company brand name, are not even shown on the balance sheet

Another name for cash flow from assets:

Free Cash Flow

Cash flow from assets can also be called

Free Cash Flow

Accounting principles dictate that assets should be placed on the balance sheet at:

Historical Cost-Assets are placed on balance sheet at the amount paid for them when they are purchased. Referred to as the asset's historical cost, book value, or carrying value.

Accounting Statement that measures the revenues, expenses, and net income of a firm over a period of time is called:

Income Statement

Retiring (paying off) debt will:

Increase cash flow to creditors

Increase Cash Flow from Assets

Increase in operating cash flow (OCF)

An issue of new stock would

Increase net new equity raised and decrease cash flow to stockholders

Cash Flow to creditors is defined as

Interest paid - net new borrowing

Least Liquid Current Asset is typically considered to be:

Inventory-b/c it may be subject to obsolescence, and will likely incur the greatest loss in value if it must be sold quickly

Decrease cash flow to creditors

Issue New Debt

Decrease cash flow to stockholders

Issue new stock

Which of the following will decrease the net working capital of a firm?

Making a payment on a long term debt

Which of the following statements concerning market and book values is correct?

Market value tends to provide a better guide to the actual worth of an asset than does the book value

Which decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?

Noncash Item

Cash Flow from assets:

Operating Cash Flow - change in net working capital - net capital spending

Cash flow to stockholders is defined as

dividends paid - net new equity raised

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:

had to decrease

An increase in operating cash flow will

increase cash flow from assets

Sequence on the Balance Sheet

-Cash -Short Term Investments -Accounts Receivables -Inventory -Fixed Assets -Accounts Payable -Notes Payable -Long-term Debt -Common Stock

Decrease cash flow from assets

-Increase in net working capital -Purchase fixed assets

Increase cash flow to stockholders

-Repurchase stock -Pay dividends

Increase cash flow to creditors

-Retire (pay off) debt -Pay interest expense

Which two of the following determine when revenue is recorded on the financial statements based on the recognition principle?

-The earnings process is virtually complete -The value of a sale can be reliably determined

Which is included in net working capital

Accounts payable

Which of the following will decrease the liquidity level of a firm?

Cash purchase of inventory

Current assets are expected to:

Convert to cash over the next 12 months

Which is an intangible fixed assets

Copyright

New Working Capital

Current Assets-Current Liabilities

A purchase of new fixed assets will:

Decrease cash flow from assets

An increase in current assets

Decrease cash flow from assets