FINANCIAL MANAGEMENT 13TH EDITION
Complete Solutions Manual for Analysis for Financial
Management 13th Edition by Robert C. Higgins, Jennifer
Koski & Todd Mitton | 2025/2026 Updated Solutions Guide
| Chapter-by-Chapter Answers, Financial Analysis,
Forecasting, Valuation & Corporate Finance
Questions 1-15: Foundational Concepts & Financial Statements
1. Current liabilities are defined as liabilities with a maturity of less than one year.
Answer: True
Rationale: Current liabilities are obligations that a company expects to settle within its normal
operating cycle, typically one year .
2. A decline in the Net Property, Plant, and Equipment account between year-end 2020 and year-
end 2021 is a clear indication that fixed assets were sold during 2021.
Answer: False
Rationale: A decline in net PP&E can also be caused by depreciation expense, which reduces the
book value of assets even if no assets are sold .
3. When reporting financial performance for tax purposes, U.S. companies prefer to use
accelerated depreciation methods over the straight-line method.
Answer: True
Rationale: Accelerated depreciation generates higher depreciation expenses in the early years of an
asset's life, which lowers taxable income and tax payments in those years .
4. Accounting rules require U.S. companies to depreciate research and development (R&D)
expenditures using the straight-line method.
Answer: False
Rationale: Under U.S. GAAP, R&D expenditures are generally expensed as incurred, not depreciated
or capitalized .
5. You can construct a sources and uses statement for 2021 if you have a company's year-end
balance sheets for 2021 and 2022.
Answer: False
Rationale: A sources and uses statement for 2021 requires the beginning balance sheet (from the
end of 2020) and the ending balance sheet (from the end of 2021) to analyze the changes over that
specific year .
6. A reduction in long-term debt is a use of cash.
Answer: True
Rationale: Repaying long-term debt reduces a liability and requires a cash outflow. Therefore, it is
classified as a use of cash .
7. The accrual principle requires that revenue not be recognized until payment from a sale is
received.
Answer: False
, FINANCIAL MANAGEMENT 13TH EDITION
Rationale: The accrual principle dictates that revenue is recognized when it is earned, not
necessarily when cash is received. This is a key reason why profits and cash flow can differ .
8. An increase in cash and cash equivalents should appear as a use of cash on the sources and uses
statement.
Answer: True
Rationale: An increase in an asset account, including cash itself, is a use of cash in the sources and
uses statement .
9. Which financial statement summarizes a firm's revenue and expenses over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Shareholders' equity statement
Answer: A) Income statement
Rationale: The income statement measures the company's financial performance over a period by
matching revenues to the expenses incurred to generate them .
10. The sources and uses of cash over a stated period of time are reflected in the:
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of operating position
Answer: C) Cash flow statement
Rationale: The cash flow statement specifically tracks all cash inflows (sources) and outflows (uses)
during a period, organized into operating, investing, and financing activities .
11. Which of the following is a source of cash?
A) Increase in accounts receivable
B) Decrease in common stock
C) Decrease in notes payable
D) Increase in accounts payable
Answer: D) Increase in accounts payable
Rationale: An increase in a liability, like accounts payable, means the company has delayed paying
its suppliers, which preserves cash, making it a source of cash .
12. Which of the following is a use of cash?
A) Increase in notes payable
B) Increase in inventory
C) Decrease in accounts receivable
D) Increase in common stock
Answer: B) Increase in inventory
Rationale: An increase in any asset (like inventory) represents a cash outflow to acquire that asset,
making it a use of cash .
13. Which of the following would NOT be considered a use of cash?
A) Dividends paid
B) A decrease in accounts payable
C) Depreciation
D) An increase in the cash and marketable securities account
, FINANCIAL MANAGEMENT 13TH EDITION
Answer: C) Depreciation
Rationale: Depreciation is a non-cash accounting charge. It reduces net income but does not involve
any cash outflow, so it is not considered a use of cash .
14. Which statement shows a financial snapshot, taken at a point in time, of all assets and claims
against those assets?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of operating position
Answer: B) Balance sheet
Rationale: The balance sheet provides a snapshot of a company's financial position, listing assets,
liabilities, and shareholders' equity, at a specific point in time .
15. Depreciation expense:
A) Decreases both taxes and net income.
B) Increases net fixed assets.
C) Increases net income.
D) Decreases current assets and net income.
Answer: A) Decreases both taxes and net income.
Rationale: Depreciation is a tax-deductible expense that reduces pre-tax income, thereby lowering
taxes and net income .
Questions 16-30: Cash Flow, Valuation & Balance Sheet Mechanics
16. A company sells used equipment with a book value of $100,000 for $250,000 cash. How would
this transaction affect the company's balance sheet?
A) Equity rises $250,000; net plant and equipment falls $250,000.
B) Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
C) Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.
D) Cash rises $250,000; net plant and equipment falls $250,000; equity rises $150,000.
**Answer:** D) Cash rises $250,000; net plant and equipment falls $250,000; equity rises $150,000.
Rationale: Cash increases by the sale price. The asset (net PP&E) is reduced by its full original cost.
The gain of $150,000 ($250,000 sale price - $100,000 book value) flows through to increase
shareholders' equity via retained earnings .
17. The book value of a firm's equity is primarily based on:
A) The market value of its assets.
B) Historical cost of assets less liabilities.
C) The discounted value of future cash flows.
D) The liquidation value of its assets.
Answer: B) Historical cost of assets less liabilities.
Rationale: Book value is an accounting measure based on the historical cost of assets minus
accumulated depreciation and liabilities .
18. A key reason a company's market value of equity differs from its book value of equity is
because:
A) Shareholders are keenly aware of book values but have little interest in market values.
B) Accountants' charges for the cost of equity are often higher than they should be.
C) Values of assets on the balance sheet typically reflect historical cost, adjusted for depreciation.
Complete Solutions Manual for Analysis for Financial
Management 13th Edition by Robert C. Higgins, Jennifer
Koski & Todd Mitton | 2025/2026 Updated Solutions Guide
| Chapter-by-Chapter Answers, Financial Analysis,
Forecasting, Valuation & Corporate Finance
Questions 1-15: Foundational Concepts & Financial Statements
1. Current liabilities are defined as liabilities with a maturity of less than one year.
Answer: True
Rationale: Current liabilities are obligations that a company expects to settle within its normal
operating cycle, typically one year .
2. A decline in the Net Property, Plant, and Equipment account between year-end 2020 and year-
end 2021 is a clear indication that fixed assets were sold during 2021.
Answer: False
Rationale: A decline in net PP&E can also be caused by depreciation expense, which reduces the
book value of assets even if no assets are sold .
3. When reporting financial performance for tax purposes, U.S. companies prefer to use
accelerated depreciation methods over the straight-line method.
Answer: True
Rationale: Accelerated depreciation generates higher depreciation expenses in the early years of an
asset's life, which lowers taxable income and tax payments in those years .
4. Accounting rules require U.S. companies to depreciate research and development (R&D)
expenditures using the straight-line method.
Answer: False
Rationale: Under U.S. GAAP, R&D expenditures are generally expensed as incurred, not depreciated
or capitalized .
5. You can construct a sources and uses statement for 2021 if you have a company's year-end
balance sheets for 2021 and 2022.
Answer: False
Rationale: A sources and uses statement for 2021 requires the beginning balance sheet (from the
end of 2020) and the ending balance sheet (from the end of 2021) to analyze the changes over that
specific year .
6. A reduction in long-term debt is a use of cash.
Answer: True
Rationale: Repaying long-term debt reduces a liability and requires a cash outflow. Therefore, it is
classified as a use of cash .
7. The accrual principle requires that revenue not be recognized until payment from a sale is
received.
Answer: False
, FINANCIAL MANAGEMENT 13TH EDITION
Rationale: The accrual principle dictates that revenue is recognized when it is earned, not
necessarily when cash is received. This is a key reason why profits and cash flow can differ .
8. An increase in cash and cash equivalents should appear as a use of cash on the sources and uses
statement.
Answer: True
Rationale: An increase in an asset account, including cash itself, is a use of cash in the sources and
uses statement .
9. Which financial statement summarizes a firm's revenue and expenses over a period of time?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Shareholders' equity statement
Answer: A) Income statement
Rationale: The income statement measures the company's financial performance over a period by
matching revenues to the expenses incurred to generate them .
10. The sources and uses of cash over a stated period of time are reflected in the:
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of operating position
Answer: C) Cash flow statement
Rationale: The cash flow statement specifically tracks all cash inflows (sources) and outflows (uses)
during a period, organized into operating, investing, and financing activities .
11. Which of the following is a source of cash?
A) Increase in accounts receivable
B) Decrease in common stock
C) Decrease in notes payable
D) Increase in accounts payable
Answer: D) Increase in accounts payable
Rationale: An increase in a liability, like accounts payable, means the company has delayed paying
its suppliers, which preserves cash, making it a source of cash .
12. Which of the following is a use of cash?
A) Increase in notes payable
B) Increase in inventory
C) Decrease in accounts receivable
D) Increase in common stock
Answer: B) Increase in inventory
Rationale: An increase in any asset (like inventory) represents a cash outflow to acquire that asset,
making it a use of cash .
13. Which of the following would NOT be considered a use of cash?
A) Dividends paid
B) A decrease in accounts payable
C) Depreciation
D) An increase in the cash and marketable securities account
, FINANCIAL MANAGEMENT 13TH EDITION
Answer: C) Depreciation
Rationale: Depreciation is a non-cash accounting charge. It reduces net income but does not involve
any cash outflow, so it is not considered a use of cash .
14. Which statement shows a financial snapshot, taken at a point in time, of all assets and claims
against those assets?
A) Income statement
B) Balance sheet
C) Cash flow statement
D) Statement of operating position
Answer: B) Balance sheet
Rationale: The balance sheet provides a snapshot of a company's financial position, listing assets,
liabilities, and shareholders' equity, at a specific point in time .
15. Depreciation expense:
A) Decreases both taxes and net income.
B) Increases net fixed assets.
C) Increases net income.
D) Decreases current assets and net income.
Answer: A) Decreases both taxes and net income.
Rationale: Depreciation is a tax-deductible expense that reduces pre-tax income, thereby lowering
taxes and net income .
Questions 16-30: Cash Flow, Valuation & Balance Sheet Mechanics
16. A company sells used equipment with a book value of $100,000 for $250,000 cash. How would
this transaction affect the company's balance sheet?
A) Equity rises $250,000; net plant and equipment falls $250,000.
B) Cash rises $250,000; net plant and equipment falls $100,000; equity rises $150,000.
C) Cash rises $250,000; accounts receivable falls $100,000; goodwill rises $150,000.
D) Cash rises $250,000; net plant and equipment falls $250,000; equity rises $150,000.
**Answer:** D) Cash rises $250,000; net plant and equipment falls $250,000; equity rises $150,000.
Rationale: Cash increases by the sale price. The asset (net PP&E) is reduced by its full original cost.
The gain of $150,000 ($250,000 sale price - $100,000 book value) flows through to increase
shareholders' equity via retained earnings .
17. The book value of a firm's equity is primarily based on:
A) The market value of its assets.
B) Historical cost of assets less liabilities.
C) The discounted value of future cash flows.
D) The liquidation value of its assets.
Answer: B) Historical cost of assets less liabilities.
Rationale: Book value is an accounting measure based on the historical cost of assets minus
accumulated depreciation and liabilities .
18. A key reason a company's market value of equity differs from its book value of equity is
because:
A) Shareholders are keenly aware of book values but have little interest in market values.
B) Accountants' charges for the cost of equity are often higher than they should be.
C) Values of assets on the balance sheet typically reflect historical cost, adjusted for depreciation.
