FIN3403 Exam 1 chapter 2
A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?
$780
Which one of the following statements is correct concerning a corporation with taxable income of $125,000?
An increase in depreciation will increase the operating cash flow.
Which one of the following statements related to an income statement is correct?
Taxes reduce both net income and operating cash flow.
A positive cash flow to stockholders indicates which one of the following with certainty?
The dividends paid exceeded the net new equity raised
Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?
income statement
Which one of the following is NOT included in cash flow from assets?
interest expense
Shareholders' equity:
represents the residual value of a firm.
Which one of the following represents the most liquid asset?
$100 of inventory that is sold today for $100 cash
Which one of the following statements concerning net working capital is correct?
A decrease in the cash balance may or may not decrease net working capital.
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
The common set of standards and procedures by which audited financial statements are prepared is known as the:
Generally Accepted Accounting Principles
Which one of the following must be true if a firm had a negative cash flow from assets?
The firm utilized outside funding.
Which one of the following statements related to an income statement is correct? Assume accrual accounting is used.
The labor costs for producing a product are expensed when the product is sold.
The _____ tax rate is equal to total taxes divided by total taxable income.
average
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
The book value of a firm is:
based on historical cost.
The cash flow of a firm which is available for distribution to the firm'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.
You recently purchased a grocery store. At the time of the purchase, the store's market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?
construction of a new restricted access highway located between the store and the surrounding residential areas
Net working capital is defined as:
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
For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.
depreciation
Which one of the following costs is most apt to be a fixed cost?
depreciation
Cash flow to stockholders is defined as
dividend payments less net new equity raised.
Noncash items refer to:
expenses which do not directly affect cash flows.
Cash flow from assets is also known as the firm's:
free cash flow
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
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.
marginal
Which one of these is most apt to be a fixed cost?
office salaries
Which term relates to the cash flow which results from a firm's ongoing, normal business activities?
operating cash flow
Depreciation:
reduces both taxes and net income.
Which one of the following will increase the value of a firm's net working capital?
selling inventory at a profit
Which one of the following is classified as an intangible fixed asset?
trademark
As of 2012, which one of the following statements concerning corporate income taxes is correct?
A firm's tax is computed on an incremental basis.
Which one of the following is true according to Generally Accepted Accounting Principles?
Costs of goods sold are recorded based on the matching principle.
Which one of the following statements related to liquidity is correct?
Liquid assets are valuable to a firm.
Which one of the following statements related to taxes is correct?
The marginal tax rate for a firm can be either higher than or the same as the average tax rate.
Which one of the following accounts is the most liquid?
accounts receivable
The higher the degree of financial leverage employed by a firm, the:
higher the probability that the firm will encounter financial distress.
Net capital spending:
is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense
