MBA 702 Module 1-2

Which one of the following represents the most liquid asset?

$100 of inventory that is sold today for $100 cash

The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:

cash flow from assets

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

cash flow to creditors

As the degree of financial leverage increases, the:

probability a firm will encounter financial distress increases

Shareholders' Equity:

represents the residual value of a firm

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Balance sheet

You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?

Construction of a new restricted access highway located between the store and the surrounding residential areas

Which one of the following will increase the cash flow from assets, all else equal?

Decrease in the change in net working capital

Which one of the following accounts is the most liquid?

Equipment

Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?

NWC= $4,900 - 3,200 - 1,400 NWC=$300

Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?

Good reputation of the company

Which one of the following statements concerning net working capital is correct?

Net working capital may be a negative value

Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?

Noncash expenses=Depreciation=$1,611

Net working capital is defined as:

current assets minus current liabilities

A firm has net working capitial of $560. Long term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of total liabilities?

Current assets + current liabilities = Total liabilities Current assets= 7,390-3,910 Current assets= 3,480 Current liabilities= 3,480-560 Current liabilities= 2,920 Total liabilities= 2,920 + 3,970 Total liabilities=6,890

A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital?

NWC= $680 + 210 + 80 - 250 NWC = $720

Which one of the following is a current asset?

accounts receivable

The book value of a firm is:

based on historical cost

Noncash items refer to:

expenses that do not directly affect cash flows

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

free cash flow