FNAN 300 Ch. 2
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 GAAP matching principle requires revenues to be matched with:
expenses
______ is not a component of cash flow from assets?
financing expenses
Costs that do not change in the short run arise because of:
fixed commitments
Under GAAP, assets are generally carried on a firm's balance sheet at:
-historical cost -book value
How is the average income tax rate computed?
total tax bill / total taxable income
If a firm's current assets equals $200 and its current liabilities equal $150, then its net working capital equals _____.
$50
Marginal tax rates are the most important tax rates because:
- financial decision are usually baed on new cash flows -incremental cash flows are taxed at marginal tax rates
According to GAAP, when is revenue recognized on a income statement?
-When the value of an exchange of goods or services is known or reliably determined -when the earnings process is virtually completed
which of the following are components of cash flow from assets
-capital spending -change in net working capital -operating cash flow
Depreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produced from owning it
-equipment -fixed assets
Marginal tax rates are the most important tax rates because:
-financial decision are usually based on new cash flows -Incremental cash flows are taxed at marginal tax rates
Under GAAP, asses are generally carried on a firm's balance sheet at:
-historical cost -book value
Which of the following are classified as fixed assets on the balance sheet?
-land -buildings -equipment
Which of the following are classifies as liabilities on a firm's balance sheet?
-long-term debt -accounts payable
Assets can be categorized as:
-tangible and intangible assets -current and fixed assets
Which of the following is an example of a non-cash item? on an income statement?
Depreciation
Which of the following is NOT a component of cash flows from assets?
Financing expenses
What is the purpose of the income statement?
To measure performance over a set period of time
A balance sheet reflects a firm's:
accounting value on a specific date
A balance sheet reflects a firms:
accounting value on a specific date
In the long run, costs ma be considered:
all variable
In the long-run, costs may be considered as:
all variable
The cash flow identity states that cash flows from _____ should equal cash flows to creditors and equity investors
assets
On the balance sheet, assets are listed at their _____ value:
book
The short run is a period where there are _____ costs
both fixed and variable
Non-cash items do not affect ______.
cash flow
In finance, the value of a fir depends on its ability to generate:
cash flows
In finance, the value of a firm depends on its ability to generate
cash flows
Net working capital equals:
current assets minus current liabilities
The more debt a firm has, the greater its:
degree of financial leverage
Cashflow to creditors equals:
interest paid minus net new borrowing
Cash flow to creditors equals:
interest paid minus new borrowing
The price at which willing buyers and sellers would trade is called ____ value.
market
The price at which willing buyers and sellers would trade is called ______ value.
market
Physical assets are termed:
tangible
Changes in capital spending can be negative if:
the firm sold more assets than it purchased
Common stockholders are entitles to the difference between _____ and _____
total assets; total liabilities
Financial leverage refers to a firm's:
use of debt in its capital structure
Current assets ____ exceed current liabilities in a healthy firm
usually
____ costs change as the output of the firms changes
variable
What questions can be answered by reviewing a company's balance sheet?
- How much debt is used to finance the firm -What is the total amount of assets the firm owns?
What should you keep in mind when examining an income statement?
-time and costs -GAAP -cash versus non-cash items
Easiest to hardest to turn assets into cash:
1. Cash equivalents 2. Accounts Receivables 3. Inventory 4. Plant and equipment
What does stockholder's equity represent?
A residual claim against the firm's assets
Which of the following is an example of a non-cash item on an income statement?
Depreciation
The last item (or bottom line) on the income statement is typically the ______.
net income
Net capital spending is equal to the change in net fixed assets plus:
depreciation
