Financial Management Ch 2

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If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ___.
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If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the change in capital spending is ___.
$50
If interest paid is $100 and net new borrowing is $150, then cash flow to creditors equals:
$-50

Cash flow paid to creditors = interest paid - net new borrowing
The cash flow identity states that cash flows from ____ should equal cash flows to creditors and equity investors.
assets
If dividends are $100, stock sold is $10, and stock repurchased in $25, what is the cash flow to stockholders?
$85

Cash flow to stockholders = dividends paid - net new equity
Net working capital will be negative when current assets ____ current liabilities
are less than
If the Federal marginal tax rate is 34%, the state marginal tax rate is 5%, and the local marginal tax bracket is 1%, how much money will a corporation keep if it makes another $1,000,000 in taxable income?
$600,000
True or False: For financial analysis, financial statements and accounting numbers are more important than cash flows.
False
What is the purpose of the income statement?
To measure performance over a set period of time.
The cash flow identity states that cash flow from assets equals cash flows to___.
Creditors and stockholders
Which of the following is shown on the left hand side of the balance sheet?
Assets
When a firm smooths earning to please investors, it is called____.Earning managementWhat should you keep in mind when examining and income statement?Cash versus non-cash items time and costs GAAPWhat is the following items is not readily available in financial statements and can only be calculated from the information available in financial statements?The firms actual cash flowsCash flow to stockholders equals____.Dividends paid minus net new equity raisedTrue or False: Free cash flow is very similar to cash flow from assets.TrueNet capital spending is equal to the change in net fixed assets plusdepreciationWhich of the following are components of cash flow from assets?operating cash flow capital spending change in net working capitalIn finance, the value of a firm depends on its ability to generate ___.cash flowsOn the balance sheet, assets are listed at their ____ value.bookCash flow to creditors equals:Interest paid - net new borrowingFree cash flow is better described as ___.total distributable cash flowChanges in capital spending can be negative ifthe firm sold more assets than it purchasedA positive operating cash flow indicates that the firm is generating enough cash to:pay operating costsTrue or False: Operating cash flow does not include depreciation or interestTrueWhich of the following is NOT a component of cash flow from assets?Financing expensesMarginal tax rates are the most important tax rates because:Financial decisions are usually based on new cash flows Incremental cash flows are taxed at marginal tax ratesThe ___ tax rate is the tax rate paid on the next dollar of income.marginalAccording to the originators of the current U.S. corporate tax code, the only rates are:35% 15% 25% 34%What does GAAP stand for?Generally Accepted Accounting PrinciplesUnder GAAP, assets are generally carried on the firm's balance sheet at___.book value historical costCommon stockholders are entitled to the difference between ___ and ___.Total assets: total liabilitiesA customer has yet to pay the bill for products purchased from Firm a on credit. This customer's trade credit is recorded in which of Firm A's balance sheet accounts?Accounts receivableWhich of the following is a current asset?InventoryRank the ease (from easiest to hardest) of turning the following assets into cash.Cash equivalents accounts receivable inventory plant and equipmentIf a firm's current assets are $100 and its current liabilities are $80, then its net working capital is?$20What does stockholders' equity represent?A residual claim against the firm's assetsLong-term liabilities represent obligations of the firm lasting over...1 yearWhich of the following are classified as liabilities on a firm's balance sheet?long-term debt accounts payableProduct costs are usually shown on the income statement under the heading of ____.Cost of goods soldThe short run is a period when there are ___ costs.Both fixed and variablecosts that do not change in the short run arise because of ___.fixed commitmentsNon-cash items do not affect ___.Cash flowDepreciation is the accountant's estimate of the cost of ____ used in the production process matched with the benefits produced from owning it.Equipment fixed assetsThe ____ 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.matchingAccording to GAAP, when is revenue recognized on an income statement?When the earnings process is virtually complete When the value of an exchange of goods or services is known or reliably determinedThe last item (or "bottom line") on the income statement is typically the ___.Net incomeThe price at which willing buyers and sellers would trade is called ___ value.marketThe more debt a firm has, the greater its:degree of financial leverageLiquidity has two dimensions which are the ability to:quickly convert assets into cash without significant loss in valueNet working capital equals ___.current assets minus current liabilitiesWhich of the following is the balance sheet equation?Assets equals liabilities plus stockholders equityThe balance sheet identity shows the stockholders' equity equals assets ___ liabilitiesminusAssets can be categorized ascurrent and fixed assets tangible and intangible assetsWhich of these questions can be answered by reviewing a firm's balance sheet?how much debt is used to finance the firm? what is the total amount of assets the firm owns?For the past year LP Gas, Inc., had cash flows from assets of $38,100 of which $21,500 flowed to the firm's stockholders. The interest paid was $2,300. What is the amount of the net new borrowing?$-14,300 Cash flows from assets = cash flows to stockholders + net new borrowing 38100 = 21500 + (2300 - x) x = -14300Rusty Antiques has a marginal tax rate of 39 percent and an average tax rate of 26.9 percent. If the firm owes $37,265 in taxes, how much taxable income did it earn?$138,532 x = 37265/.269A negative cash flow to stockholders indicates a firm:received more from selling stock than it paid out to shareholdersBlythe Industries reports the following account balances: inventory of $417,600, equipment of $2,028,300, accounts payable of $224,7000, cash of $51,900 and accounts receivable of $313,900. What is the amount of the current assets?$783,400 x = 417600 + 51900 + 313900Net working capital is defined as:Current assets minus current liabilitiesShareholders equity is equal to:net fixed assets minus long-term debt plus net working capitalThe market valueof an asset tends to provide a better guide to the actual worth of an asset than does the book value.Highly liquid assets:can be sold quickly at close to full valueCash flow to stockholders is defined as:dividends paid minus net new equity raisedCash flow to creditors is defined as:interest paid minus net new borrowingCash flow from assets is defined as:operating cash flow minus the change in net working capital minus net capital spendingThe tax rate that determines the amount of tax that will be dues on the next dollar of taxable income earned is called themarginal tax rate