Chapter 2

The cash generated from a firm's normal business activities is referred to as the:

operating cash flow

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

operating cash flow

The average tax rate is defined as the:

total tax paid divided by the total taxable income

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

trademark

Pierce Securities has sales of $391,000, costs of $298,000, depreciation expense of $55,000, and interest paid of $26,571. The tax rate is 30%. How much net income did Bernie's earn for the period?

$8,000

Ellis Industries has current liabilities of $11,200 and accounts receivable of $2,200. The firm has total assets of $43,400 and net fixed assets of $38,500. The owners' equity has a book value of $21,000. What is the amount of the net working capital?

-$6,300

What is a definition of net working capital?

current assets minus current liabilities.

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

decrease in net capital spending

Cash flow to creditors is equal to interest paid minus:

ending long-term debt minus beginning long-term debt.

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

greater the level of debt.

Net capital spending:

is equal to ending net fixed assets minus beginning net fixed assets

The net amount of a firm's cash flows that are spent on fixed assets is called:

net capital spending

The balance sheet of Robertson Technologies shows current liabilities of $38,300 and long-term debt of $122,600 as of last year. Current liabilities are $32,200 and long-term debt is $139,200 as of today, which is the end of the current year. The income statement for the current year displays an interest paid amount of $4,600. What is the amount of the net new borrowing for the current year?

$16,600

Foster Systems reports the following account balances: inventory of $12,600, equipment of $40,000, accounts payable of $3,900, cash of $2,200, and accounts receivable of $9,400. How much does the firm have in net working capital?

$20,300

Graham Auto Sales has current assets of $3,300, current liabilities of $5,800, and total assets of $45,100. Owner's equity is $15,000. What is the value of the long-term debt?

$24,300

Ray & Co, LLC had $37,000 in net fixed assets at the beginning of the year. During the year, the company purchased $8,500 in new equipment. They also sold, at a price of $1,500, some old equipment with a book value of $3,200. The depreciation expense for the year was $8,300. What is the net fixed asset balance at the end of the year?

$34,000

Adams Industries has net income for the year of $28,100. At the beginning of the year, the firm had common stock of $76,000, paid-in surplus of $129,000, and retained earnings of $67,000. At the end of the year, the firm had common stock of $84,000, paid-in surplus of $159,000 and retained earnings of $83,400. What is the amount of the net new equity raised during the year?

$38,000

The financial statements of Patterson & Sons reflect depreciation expenses of $29,100 and interest expenses of $6,300 for the year. The current assets increased by $15,200 and the net fixed assets increased by $10,800. What is the amount of the net capital spending for the year?

$39,900

Hughes Entertainment has total assets of $13,500, net working capital of $1,200, owner's equity of $5,000 and long-term debt of $3,500. What is the value of the current assets?

$6,200

Which one of the following statements related to the cash flow to creditors is correct?

A positive cash flow to creditors represents a net cash outflow from the firm

Which one of the following is a noncash item?

annual depreciation on a fixed asset

Tangible assets

are assets that can be physically touched, such as a computer.

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

cash flow to creditors.