Finance - Chapter 2

Four years ago, Velvet Purses purchased a mailing machine at a cost of $188205. This equipment is currently valued at $62821 on today's balance sheet but could actually be sold for $8430. This is the only fixed asset the firm owns. Net working capital is $33184. and long term debt is $98438. What is the book value of shareholder's equity?

-2433.00

A firm has net working capital of 7590. Long-term debt is 1321, total assets are 2426, and fixed assets are 3937. What is the amount of the total liabilities?

-7780

taxes are always

Changing

OPERATING CASH FLOW=

EBIT+ depreciation-taxes

What are the 2 factors of liquidity?

Ease of conversion versus loss of value

Change in NWC=

Ending NWC - Beginning NWC (Ending CA-CL)-(Beginning CA-CL)

NET CAPTITAL SPENDING=

Ending net fixed assets- begining net fixed assets + depreciation

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

Free cash flow

What financial statement that summarizes a firm's revenue and expenses over a period of time?

Income Statement

What do marginal & average tax rates mean?

Marginal Tax Rate: The tax rate you would pay if you had one more taxable dollar Average Tax Rate: The tax rate you are paying on all of your taxable income which averages across all of your corporate tax categories

Earnings per share=

Net Income / # of Shares Outstanding

Which one of the following statements concerning net working capital is correct? a. An increase in net working capital must also increase current assets b. The lower the value of net working capital the greater the ability of firm to meet its current obligations c. Firms with equal amounts of net working capital are also equally liquid d. Net working capital increases when inventory is sold for cash at a profit e. Net working capital is a part of the opreating cash flow

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

CASH FLOW FROM ASSETS=

Operating Cash Flow - Net Capital Spending - Changes in NWC or CFTC+CFTS

Which one of the following will increase the value of a firm's net working capital?

Selling inventory at a profit

Total Assets =

Total Liabilities + Stockholders Equity

Income statement *know these things*

You report revenues first and then deduct any expenses for the period. Matching principle - GAAP says to show revenue when it accrues and match the expenses required to generate the revenue

The book value of a firm is:

based on historical cost

CASH FLOW TO CREDITORS=

interest paid - net new borrowing

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

cash flow to creditors

NWC =

current assets - current liabilities

Net working capital is defined as:

current assets - current liabilities

The balance sheet provides?

book value of the assets, liabilities, and equity

Market value is?

the price at which the assets, liabilities, or equity can actually be bought or sold

Shareholder's equity represents?

the residual value of a firm

The average tax rate is equal to?

total taxes divided by total taxable income.

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

trademark

True or False. Office salaries are a fixed cost?

true

A firm has net working capital of 5794. Long-term debt is 3911, total assets are 1338, and fixed assets are 8592. What is the amount of the total liabilities?

-9137.00

A firm has 104 in inventory, 1287 in fixed assets, 315 in accounts receivables, 571 in accounts payable, and 1335 in cash. What is the amount of the current assets?

1754

A firm has common stock of {cs}, paid-in surplus of {pds}, total liabilities of 3068. current assets of 3774, and fixed assets of 29902. What is the amount of the shareholder's equity?

30608.00

A firm has 1762 in inventory, 1844 in fixed assets, 400 in accounts receivables, 33 in accounts payable, and 1050 in cash. What is the amount of the current assets?

3212

Jensen Enterprises paid 5701 in dividends and {int} in interest this past year. Common stock increased by {cs} and retained earnings decreased by -973. What is the net income for the year?

4728.00

A firm has 944 in inventory, 277 in fixed assets, 3763 in accounts receivable, 831 in accounts payable, and 100 in cash. What is the amount of the current assets?

4807

Four years ago, Velvet Purses purchased a mailing machine at a cost of $154808. This equipment is currently valued at $25955 on today's balance sheet but could actually be sold for $1729. This is the only fixed asset the firm owns. Net working capital is $92535. and long term debt is $65077. What is the book value of current assets?

53413.00

A firm has common stock of {cs}, paid-in surplus of {pds}, total liabilities of 2531. current assets of 3223, and fixed assets of 5043. What is the amount of the shareholder's equity?

5735

Jensen Enterprises paid 6682 in dividends and {int} in interest this past year. Common stock increased by {cs} and retained earnings decreased by -678. What is the net income for the year?

6004

Which one of the following statements concerning net working capital is correct? Select one: a. Net working capital increases when inventory is purchased with cash b. Net working capital is the amount of cash a firm currently has available for spending c. A decrease in the cash balance may or may not decrease net working capital d. Net working capital must be a positive value e. Total assets must increase if net working capital increases

A decrease in the cash balance may or may not decrease net working capital

Owners Equity=

Assets - Liabilities total assets-total debts

Which financial statement shows the accounting value of a firm's equity as of a particular date? (snapshot of the firms assets & liabilities)

Balance Sheet

The higher the degree of financial leverage employed by a firm, the?

higher the probability that the firm will encounter financial distress

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

Operating Cash Flow

GAAP (Generally Accepted Accounting Principles)

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

Which one of the following must be true if a firm had a negative cash flow from assets? Select one: a. Newly issued shares of stock were sold b. The firm borrowed money c. The firm utilized outside funding d. The firm acquired new fixed assets e. The firm had a net loss for the period

The firm utilized outside funding

Which one of the following statements concerning net working capital is correct? a. A decrease in the cash balance may or may not decrease net working capital b. Net working capital must be a positive value c. Net working capital is the amount of cash a firm currently has available for spending d. Total assets must increase if net working capital increases e. Net working capital increases when inventory is purchased with cash

a. A decrease in the cash balance may or may not decrease net working capital

Which one of the following accounts is the most liquid? a. inventory b. accounts receivable c. building d. equipment e. land

accounts receivable

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value? Select one: a. an item held by the firm for future sale b. real estate investment c. good reputation of the company d. money due from a customer e. equipment owned by the firm

c. good reputation of the company

dividends per share

cash dividends/# of shares

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

cash flow from assets

Cash flow to stockholders is?

dividend payments less net new equity raised

CASH FLOW TO STOCKHOLDERS=

dividends paid - net new equity raised

Net Income

dividends+retained earnings

Noncash items refer to:

expenses which do not directly affect cash floe

The higher the degree of financial leverage employed by a firm, the:

higher the probability that the firm will encounter financial distress

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

marginal

Depreciation?

reduces both taxes and net income

Liquidity is?

the ease of conversion to cash without significant loss of value