Financial Management Chapter 2

Which one of the following represents what a firm owns at a given point in time? . Its stockholders' equity Its long-term debt Its assets Its current liabilities

assets

Cash flow to ____________ is interest paid less net new borrowing.

creditors

Operating cash flow includes capital spending and working capital requirements. True False

false

Fixed costs are costs that will not change ______. till the time the business is profitable ever in the long run in the short run

in the short run

The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service. revenue historic tax matching

matching

Net working capital equals current assets ______ current liabilities. times minus plus divided by

minus

An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____. income statement statement of cash flows cash and equivalents report balance sheet

statement of cash flows

Financial statements are frequently a key source of information for financial decisions. True False

true

If a firm's net working capital is $120 in 2021 and $100 in 2020, then the change in net working capital is: Multiple choice question. +$20 +$10 -$10 -$20

+$20

Assets can be described as items that _____. a firm owns provide market value to the firm generate revenue are always the same amount as a firm's liabilities

a firm owns provide market value to the firm generate revenue

Under GAAP, U.S. firms must carry assets at: market value fair value economic value book value

book value

The short run is a period when there are ______ costs. . both fixed and variable only variable costs only fixed costs only cash

both fixed and variable

The statement of cash flow explains changes in _____. non-cash items cash and equivalents retained earnings net income

cash and equivalents

The statement of cash flow explains changes in _____. non-cash items retained earnings cash and equivalents net income

cash and equivalents

On which side of the balance sheet do liabilities appear? The left side Neither side The right side

the right side

How is income defined? Change in cash and equivalents Retained earnings minus dividends Revenue minus expenses Revenue plus expenses

Revenue minus Expenses

Free cash flow is the total of cash flow that the firm can distribute to creditors and to stockholders. True False

True

Taxes can be a large cash outflow for a corporation. True False

True

A balance sheet reflects a firm's Blank______ value on a particular date. accounting hidden fundamental market

accounting

The total of cash flow to creditors and cash flow to stockholders is called _____. return on assets debt-to-asset value cash flow from assets return on equity

cash flow from assets

The cash flow identity reflects the fact that: cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. operating cash flow is the same as operating income. a firm generates cash through its various activities.

cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. a firm generates cash through its various activities.

Cash flow to stockholders is dividends paid __________ (minus/plus) net new equity raised

minus

The short run for a firm is the period of time during which ______.

output can vary some costs are fixed

Most importantly, assets provide ______ to the firm. value leverage expenses depreciation

value

Which one of the following is true? Financial statements explicitly show costing and pricing of individual products Cash flows can be derived from financial statements. Earnings, net income, and cash flows are identical. Cash flows always exceed earnings.

Cash flows can be derived from financial statements.

Noncash items do not affect _____. cash flow retained earnings net income earnings per share

cash flow

The cash flow identity reflects the fact that: cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. a firm generates cash through its various activities. operating cash flow is the same as operating income.

cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. a firm generates cash through its various activities.

Net capital spending is equal to the change in net fixed assets plus _____. dividends depreciation notes payable retained earnings

depreciation

Net capital spending is equal to the change in net fixed assets plus _____. dividends notes payable retained earnings depreciation

depreciation

The matching principle of GAAP requires revenues be matched with _____. cash receipts expenses retained earnings net income

expenses

Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets. greater than equal to less than

less than

In the long run, all costs are _____. .variable redundant fixed operational

variable

Which of these questions can be answered by reviewing a firm's balance sheet? How much of the firm's net income was paid out in dividends? How much debt is used to finance the firm? How much net income has the firm earned this period? What is the total amount of assets the firm owns?

How much debt is used to finance the firm? What is the total amount of assets the firm owns?

The cash flow identity reflects the fact that: a firm generates cash through its various activities. operating cash flow is the same as operating income. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

a firm generates cash through its various activities. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm.

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. median; average average; marginal marginal; average average; median

average; marginal

Assets can be described as items that _____. are always the same amount as a firm's liabilities generate revenue provide market value to the firm a firm owns

generate revenue provide market value to the firm a firm owns

On a balance sheet, total assets must always equal total liabilities plus ______. retained earnings shareholders' equity fixed assets net working capital

shareholders' equity

An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____. cash and equivalents report statement of cash flows income statement balance sheet

statement of cash flows

Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets. less than equal to greater than

less than

The total of cash flow to creditors and cash flow to stockholders is called _____. return on assets return on equity cash flow from assets debt-to-asset value

cash flow from assets

f you make an extra $1,000 in income and your marginal tax rate is 30 percent while your average tax rate is 20 percent, then you will pay an extra ______ in taxes. . $200 $300 $250 $100

$300

Liquidity refers to the ease of changing _____. liabilities to assets assets to cash cash to liabilities cash in to other assets

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; median median; average average; marginal marginal; average

average; marginal

Noncash items are expenses that directly affect _____ but do not directly affect ______. cash flow; revenue cash flow; net income cash flow; taxes net income; cash flow

net income; cash flow

Cash generated from a firm's normal business activities is called _____. cash flow from assets cash flow to creditors operating cash flow

operating cash flow