Financial Management Lecture 2

Under current accounting rules, plant and equipment appear on a company's balance sheet valued at replacement value.

False

Which of the following items is part of the computation of net operating working capital for purposes of determining free cash flow?

Accounts payable

Which of the following would be included in the calculation of net operating working capital?

Accounts payable and accruals

On an accrual basis income statement, revenues and expenses always match the firm's cash flow.

False

The income statement describes the financial position of a firm on a given date.

False

Which of the following would not be included as equity in a corporate balance sheet?

Cash

Which of the following would not be included as an asset on a corporate balance sheet?

Common stock

Who owns the retained earnings of a public firm?

Common stockholders

The income statement represents a snapshot of account balances at one point in time.

False

Which of the following does NOT represent cash outflows to the firm?

Depreciation

Which of the following would not be included as a liability in a corporate balance sheet?

Depreciation

You are about to determine your corporation's taxable income. Which of the below would not be included as a tax-deductible expense?

Dividend expense

Total equity on the balance sheet increases as dividends paid increases.

False

What is sales revenue, minus cost of goods sold and operating expenses, known as for income statement purposes?

EBIT

Which of the following best represents operating income?

Earnings before interest and taxes

A firm's balance sheet provides a representation of the current market value of the company.

False

An advantage of balance sheet numbers is that assets reflect current market values.

False

An income statement reports a firm's profit relative to its total investment in plant and equipment.

False

Cash flows from assets will always be less than cash flows from financing due to dividends.

False

Dividends paid to a firm's stockholders, both preferred and common stockholders, are tax-deductible to the paying company.

False

44. Which of the following represents an attempt to measure the earnings of the firm's operations over a given time period?

Income statement

Which of the basic financial statements is best used to answer the question, "How profitable is the business?"

Income statement

Which of the following is NOT included in the calculation of free cash flows?

Interest expense

Which of the following is the least liquid current asset?

Inventory

How does "free cash flow" differ from net profit?

It takes into consideration a firm's ongoing investment in working capital and fixed assets.

Fixed assets includes which of the below?

Land

Which of the following best represents the stream of income that is available to common stockholders?

Net profit after tax and after preferred dividend payments

Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)?

Operating income

Which of the following is NOT considered a fixed asset?

Patents

Which of the following best describes a balance sheet?

Reports the amount and composition of assets and liabilities at a specified point in time.

Which of the following is NOT included in operating income?

Taxes

A balance sheet is a statement of the financial position of the firm on a given date, including its asset holdings, liabilities, and equity.

True

Corporate income statements are usually compiled on an accrual, rather than cash, basis.

True

The balance sheet describes the financial position of a firm on a given date.

True

The balance sheet provides a statement of the firm's financial position.

True

The income statement provides a statement of results for the firm's operations.

True

The interest payments on corporate bonds are tax-deductible.

True

The marginal tax rate would equal the average tax rate for firms with earnings less than $50,000.

True

Holding all other variables constant, which of the following will decrease total equity? An increase in:

dividends paid

58. Tax tables are based on ______ tax rates.

marginal

Free cash flow will increase with a decrease in __________.

tax rate

Stock that is repurchased by the issuing company is called:

treasury stock