Finance chapter 2
Which of the following are components of cash flow from assets?
- Capital spending - Operating cash flow - Change in net working capital
Which of these questions can be answered by reviewing a firm's balance sheet?
- What is the total amount of assets the firm owns? - How much debt is used to finance the firm?
U.S. corporations pay tax at a rate of
21
Which of the following is the balance sheet equation?
Assets equal liabilities plus stockholders' equity.
Which of the following is an example of a non-cash item on an income statement?
Depreciation
True or false: Current assets plus current liabilities equals net working capital.
False
Which of the following is NOT a component of cash flow from assets?
Financing expenses
Physical assets are termed ______________ assets.
Tangible
According to GAAP, when is income reported?
When it is earned or accrued
A balance sheet reflects a firm's:
accounting value on a specific date
Net earnings refers to income earned
after interest and taxes
In the long-run, costs may be considered as
all variable
The short run is
an imprecise period of time
Liquidity refers to the ease of changing
assets to cash
A company's ______ tax rate is its tax bill divided by its total taxable income, and its ______ tax rate is the tax rate it pays on the next dollar of income.
average; marginal
The short run is a period when there are
both fixed and variable
Non-cash items do not affect
cash flow
In finance, the value of a firm depends on its ability to generate
cash flows
The more debt a firm has, the greater its:
degree of financial leverage
Cash flow to stockholders equals
dividends paid minus net new equity raised
When a firm smooths earnings to please investors, it is called
earnings management
True or false: With the passage of the Tax Cuts and Jobs Act of 2017, corporate tax rates went up.
false
Cash flow to creditors equals
interest paid minus net new borrowing
The price at which willing buyers and sellers would trade is called ______ value.
market
Current assets (plus/minus) current liabilities equals NWC
minus
The balance sheet identity shows that stockholders' equity equals assets ______ liabilities.
minus
The last item (or "bottom line") on the income statement is typically the _________.
net income
Earnings management is a controversial practice in which corporations ________ or ___________ their earnings to "smooth out" dips and surges and keep investors calm.
overstate; understate
Liquidity has two dimensions which are the ability to:
quickly convert assets into cash without significant loss in value
On a balance sheet, total assets must always equal total liabilities plus
shareholders' equity
marginal
tax rate is the tax rate paid on the next dollar of income.
The market value of an item is:
the cash value you'd get if you sold it
Cash flow refers to
the difference between the number of dollars that came in and the number that went out
Financial leverage refers to a firm's
use of debt in its capital structure
According to GAAP, when is revenue recognized on an income statement?
- When the value of an exchange of goods or services is known or reliably determined - When the earnings process is virtually completed
Assets can be categorized as
- tangible and intangible assets - current and fixed assets
