Test Bank Complete_
Analysis For Financial Management 13th Edition, (2022)
By Robert C. Higgins, Jennifer Koski & Todd Mitton
All Chapters 1-9|Latest Version With Verified Answers| Rated A+
From: [Bestmaxsolutions.stuvia
,PART ONE: ASSESSING THE FINANCIAL HEALTH OF THE FIRM __________________________ 3
Chapter 1: Interpreting Financial Statements ____________________________________________ 3
Chapter 2: Evaluating Financial Performance ___________________________________________ 27
PART TWO: PLANNING FUTURE FINANCIAL PERFORMANCE __________________________ 53
Chapter 3: Financial Forecasting _____________________________________________________ 53
Chapter 4: Managing Growth _______________________________________________________ 77
PART THREE: FINANCING OPERATIONS ___________________________________________ 97
Chapter 5: Financial Instruments and Markets __________________________________________ 97
Chapter 6: The Financing Decision ___________________________________________________ 121
PART FOUR: EVALUATING INVESTMENT OPPORTUNITIES ___________________________ 146
Chapter 7: Discounted Cash Flow Techniques _________________________________________ 146
Chapter 8: Risk Analysis in Investment Decisions _______________________________________ 176
Chapter 9: Business Valuation and Corporate Restructuring ______________________________ 201
,PART ONE: ASSESSING THE FINANCIAL HEALTH OF THE FIRM
Chapter 1: Interpreting Financial Statements
Robert C. Higgins: Analysis for Financial Management 13th Edition, (2022) Test Bank
TRUE/FALSE –
Write 'T' If The Statement Is True And 'F' If The Statement Is False.
1. Current Liabilities Are Defined As Liabilities With A Maturity Of Less Than One
Year.
⊚ True
⊚ False
ANS: True
Current Liabilities Are Indeed Defined As Liabilities That Are Due Within One Year Or
Within The Company's Normal Operating Cycle, Whichever Is Longer. So, The
Statement Is Correct As Written.
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.
⊚ True
⊚ False
ANS: False
A Decline In The Net Property, Plant, And Equipment (Pp&E) Account Could Be
Caused By Several Factors, Such As Depreciation Or Asset Impairment, Not Just Sales.
Thus, A Decline In The Account Does Not Automatically Indicate That Assets Were
Sold.
,3. When Reporting Financial Performance For Tax Purposes, U.S. Companies Prefer To
Use Accelerated Depreciation Methods Over The Straight-Line Method.
⊚ True
⊚ False
ANS: True
U.S. Companies Generally Prefer Accelerated Depreciation Methods, Such As Double
Declining Balance, For Tax Purposes Because These Methods Allow For Higher
Depreciation Expenses In The Early Years Of An Asset’s Life, Reducing Taxable
Income And Thus Taxes Paid In The Short Term.
4. Accounting Rules Require U.S. Companies To Depreciate Research And Development
(R&D) Expenditures Using The Straight-Line Method.
⊚ True
⊚ False
ANS: False
U.S. Companies Do Not Capitalize And Depreciate R&D Expenditures Under Gaap.
Instead, R&D Expenses Are Typically Expensed As Incurred. Thus, Depreciation Rules
Do Not Apply To R&D Expenditures.
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.
⊚ True
⊚ False
ANS: False
To Construct A Sources And Uses Statement, You Need The Balance Sheets For Two
Consecutive Years, And The Statement Will Reflect The Changes Between Those
Periods. However, You Will Also Need To Have Additional Details, Such As The Cash
,Flow From Operating, Investing, And Financing Activities, To Properly Identify The
Sources And Uses Of Cash.
6. A Reduction In Long-Term Debt Is A Use Of Cash.
⊚ True
⊚ False
ANS: True
When A Company Reduces Its Long-Term Debt, It Involves Paying Down Debt, Which
Requires Using Cash. Therefore, A Reduction In Long-Term Debt Is A Use Of Cash.
7. The Accrual Principle Requires That Revenue Not Be Recognized Until Payment
From A Sale Is Received.
⊚ True
⊚ False
ANS: False
Under The Accrual Accounting Principle, Revenue Is Recognized When It Is Earned, Not
When Payment Is Received. This Means Revenue Is Recognized When The Sale Occurs
Or When The Product Or Service Is Delivered, Regardless Of When The Payment Is
Made.
8. An Increase In Cash And Cash Equivalents Should Appear As A Use Of Cash On The
Sources And Uses Statement.
⊚ True
⊚ False
ANS: False
An Increase In Cash And Cash Equivalents Represents A Source Of Cash, Not A Use Of
Cash. When Cash Increases, It Typically Means The Company Has Generated Cash From
Its Operations, Financing, Or Investing Activities.
,9. A Cash Flow Statement Places Each Source Or Use Of Cash Into One Of Three Broad
Categories: Operating Activities, Investing Activities, Or Financing Activities.
⊚ True
⊚ False
ANS: True
A Cash Flow Statement Divides Cash Inflows And Outflows Into Three Categories:
Operating Activities (Cash From Day-To-Day Business), Investing Activities (Cash
Spent Or Received From Buying/Selling Assets), And Financing Activities (Cash Raised
Through Debt Or Equity).
10. The Cost Of Equity Is Usually Reported On The Income Statement Right Below
Interest Expense.
⊚ True
⊚ False
ANS: False
The Cost Of Equity Is Not Reported On The Income Statement. It Is An Internal Measure
Used To Assess The Return Required By Equity Investors, Typically Calculated Using
Models Like The Capital Asset Pricing Model (Capm). Interest Expense, On The Other
Hand, Is Reported On The Income Statement And Relates To The Cost Of Debt.
11. The United States Was One Of The First Countries To Adopt International Financial
Reporting Standards.
⊚ True
⊚ False
ANS: False
The United States Has Not Yet Fully Adopted International Financial Reporting
Standards (Ifrs). While Many Other Countries Have Adopted Ifrs, The U.S. Continues To
,Use Generally Accepted Accounting Principles (Gaap) For Financial Reporting. The U.S.
Securities And Exchange Commission (Sec) Has Explored The Possibility Of Ifrs
Adoption, But It Has Not Been Fully Implemented.
MULTIPLE CHOICE
Choose The One Alternative That Best Completes The Statement Or Answers The Question.
12) Which Of The Following Statements Concerning A Firm’s Cash Flows And Profits Is
False?
A) Managers Must Be At Least As Concerned With Cash Flows As With Profits.
B) A Company That Sells Merchandise At A Profit Can Be Assured Of Generating Cash
Soon Enough To Replenish Cash Flows Required For Continued Production.
C) The Cash Flows Generated In A Given Time Period Can Differ From The Profits
Reported.
D) Profits Are No Assurance That Cash Flow Will Be Sufficient To Maintain Solvency.
E) Due To Required Cash Investments In Current Assets, Fast-Growing And Profitable
Companies Can Literally “Grow Broke”.
ANS: B
Profit Does Not Guarantee That A Company Will Generate Sufficient Cash Flow. Even If
A Company Is Profitable, It May Face Delays In Receiving Cash, For Example, Due To
Accounts Receivable Or Inventory. Profitability And Cash Flow Are Distinct Concepts,
And Cash Flows Must Be Monitored Closely To Avoid Liquidity Issues.
13) Which Of The Following Is Not A Typical Reason For Differences Between Profits
And Cash Flow?
A) Goodwill
B) Depreciation Expense
C) Changes In Accounts Receivable
,D) Accrual Accounting Practices
ANS: A
Goodwill Is An Intangible Asset That Is Not Directly Involved In The Cash Flow
Process. In Contrast, Depreciation, Changes In Accounts Receivable, And Accrual
Accounting Practices Affect Cash Flows Because They Involve Timing Differences
Between When Revenue/Expenses Are Recognized And When Cash Is Received Or
Paid.
14) Which One Of The Following Is The Financial Statement That Shows A Financial
Snapshot, Taken At A Point In Time, Of All The Assets The Company Owns And All
The Claims Against Those Assets?
A) Income Statement
B) Creditor’s Statement
C) Balance Sheet
D) Cash Flow Statement
E) Sources And Uses Statement
ANS: C
The Balance Sheet Provides A Snapshot Of A Company's Financial Position At A
Specific Point In Time, Detailing Assets, Liabilities, And Equity. The Income Statement,
On The Other Hand, Summarizes Performance Over A Period.
15) A Balance Sheet Reports The Value Of A Firm’s Assets, Liabilities, And Equity
A) Over An Annual Period.
B) Over Any Period Of Time.
C) At Any Point In Time.
D) At The End Of The Year Only.
ANS: C
,The Balance Sheet Reflects The Financial Position Of A Company At A Specific Point In
Time. Unlike The Income Statement, Which Covers A Period, The Balance Sheet
Captures Data At A Particular Date.
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.
ANS: B
The Company Receives $250,000 In Cash, So Cash Increases By This Amount. The Net
Plant And Equipment Account Decreases By The Book Value Of The Equipment, Which
Is $100,000. The Difference Between The Sale Price And The Book Value ($250,000 -
$100,000 = $150,000) Is Added To Equity.
17) A Company Purchases A New $10 Million Building Financed Half With Cash And
Half With A Bank Loan. How Would This Transaction Affect The Company’s Balance
Sheet?
A) Net Plant And Equipment Rises $10 Million; Cash Falls $10 Million; Bank Debt
Rises $5 Million.
B) Net Plant And Equipment Rises $5 Million; Cash Falls $10 Million; Bank Debt Rises
$5 Million.
C) Net Plant And Equipment Rises $5 Million; Cash Falls $5 Million; Bank Debt Rises
$5 Million.
D) Net Plant And Equipment Rises $10 Million; Cash Falls $5 Million; Bank Debt Rises
$5 Million.
ANS: D
, The Company Acquires A $10 Million Building, Which Increases Net Plant And
Equipment. The Building Is Financed With Half Cash ($5 Million) And Half Debt ($5
Million), Which Explains The Changes To Cash And The Bank Debt Accounts.
18) Which One Of The Following Is The Financial Statement That Summarizes A Firm’s
Revenue And Expenses Over A Period Of Time?
A) Income Statement
B) Balance Sheet
C) Cash Flow Statement
D) Sources And Uses Statement
E) Market Value Statement
ANS: A
The Income Statement Summarizes The Company's Revenues, Expenses, And Profits
Over A Specific Period Of Time (E.G., Quarterly Or Annually).
19) The Sources And Uses Of Cash Over A Stated Period Of Time Are Reflected In The
A) Income Statement.
B) Balance Sheet.
C) Shareholders’ Equity Statement.
D) Cash Flow Statement.
E) Statement Of Operating Position.
ANS: D
The Cash Flow Statement Tracks The Sources (E.G., Inflows) And Uses (E.G., Outflows)
Of Cash Over A Period, Providing Insights Into A Company’s Liquidity And Financial
Flexibility.
20) Which One Of The Following Is A Source Of Cash?
A) Increase In Accounts Receivable
B) Decrease In Notes Payable
Analysis For Financial Management 13th Edition, (2022)
By Robert C. Higgins, Jennifer Koski & Todd Mitton
All Chapters 1-9|Latest Version With Verified Answers| Rated A+
From: [Bestmaxsolutions.stuvia
,PART ONE: ASSESSING THE FINANCIAL HEALTH OF THE FIRM __________________________ 3
Chapter 1: Interpreting Financial Statements ____________________________________________ 3
Chapter 2: Evaluating Financial Performance ___________________________________________ 27
PART TWO: PLANNING FUTURE FINANCIAL PERFORMANCE __________________________ 53
Chapter 3: Financial Forecasting _____________________________________________________ 53
Chapter 4: Managing Growth _______________________________________________________ 77
PART THREE: FINANCING OPERATIONS ___________________________________________ 97
Chapter 5: Financial Instruments and Markets __________________________________________ 97
Chapter 6: The Financing Decision ___________________________________________________ 121
PART FOUR: EVALUATING INVESTMENT OPPORTUNITIES ___________________________ 146
Chapter 7: Discounted Cash Flow Techniques _________________________________________ 146
Chapter 8: Risk Analysis in Investment Decisions _______________________________________ 176
Chapter 9: Business Valuation and Corporate Restructuring ______________________________ 201
,PART ONE: ASSESSING THE FINANCIAL HEALTH OF THE FIRM
Chapter 1: Interpreting Financial Statements
Robert C. Higgins: Analysis for Financial Management 13th Edition, (2022) Test Bank
TRUE/FALSE –
Write 'T' If The Statement Is True And 'F' If The Statement Is False.
1. Current Liabilities Are Defined As Liabilities With A Maturity Of Less Than One
Year.
⊚ True
⊚ False
ANS: True
Current Liabilities Are Indeed Defined As Liabilities That Are Due Within One Year Or
Within The Company's Normal Operating Cycle, Whichever Is Longer. So, The
Statement Is Correct As Written.
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.
⊚ True
⊚ False
ANS: False
A Decline In The Net Property, Plant, And Equipment (Pp&E) Account Could Be
Caused By Several Factors, Such As Depreciation Or Asset Impairment, Not Just Sales.
Thus, A Decline In The Account Does Not Automatically Indicate That Assets Were
Sold.
,3. When Reporting Financial Performance For Tax Purposes, U.S. Companies Prefer To
Use Accelerated Depreciation Methods Over The Straight-Line Method.
⊚ True
⊚ False
ANS: True
U.S. Companies Generally Prefer Accelerated Depreciation Methods, Such As Double
Declining Balance, For Tax Purposes Because These Methods Allow For Higher
Depreciation Expenses In The Early Years Of An Asset’s Life, Reducing Taxable
Income And Thus Taxes Paid In The Short Term.
4. Accounting Rules Require U.S. Companies To Depreciate Research And Development
(R&D) Expenditures Using The Straight-Line Method.
⊚ True
⊚ False
ANS: False
U.S. Companies Do Not Capitalize And Depreciate R&D Expenditures Under Gaap.
Instead, R&D Expenses Are Typically Expensed As Incurred. Thus, Depreciation Rules
Do Not Apply To R&D Expenditures.
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.
⊚ True
⊚ False
ANS: False
To Construct A Sources And Uses Statement, You Need The Balance Sheets For Two
Consecutive Years, And The Statement Will Reflect The Changes Between Those
Periods. However, You Will Also Need To Have Additional Details, Such As The Cash
,Flow From Operating, Investing, And Financing Activities, To Properly Identify The
Sources And Uses Of Cash.
6. A Reduction In Long-Term Debt Is A Use Of Cash.
⊚ True
⊚ False
ANS: True
When A Company Reduces Its Long-Term Debt, It Involves Paying Down Debt, Which
Requires Using Cash. Therefore, A Reduction In Long-Term Debt Is A Use Of Cash.
7. The Accrual Principle Requires That Revenue Not Be Recognized Until Payment
From A Sale Is Received.
⊚ True
⊚ False
ANS: False
Under The Accrual Accounting Principle, Revenue Is Recognized When It Is Earned, Not
When Payment Is Received. This Means Revenue Is Recognized When The Sale Occurs
Or When The Product Or Service Is Delivered, Regardless Of When The Payment Is
Made.
8. An Increase In Cash And Cash Equivalents Should Appear As A Use Of Cash On The
Sources And Uses Statement.
⊚ True
⊚ False
ANS: False
An Increase In Cash And Cash Equivalents Represents A Source Of Cash, Not A Use Of
Cash. When Cash Increases, It Typically Means The Company Has Generated Cash From
Its Operations, Financing, Or Investing Activities.
,9. A Cash Flow Statement Places Each Source Or Use Of Cash Into One Of Three Broad
Categories: Operating Activities, Investing Activities, Or Financing Activities.
⊚ True
⊚ False
ANS: True
A Cash Flow Statement Divides Cash Inflows And Outflows Into Three Categories:
Operating Activities (Cash From Day-To-Day Business), Investing Activities (Cash
Spent Or Received From Buying/Selling Assets), And Financing Activities (Cash Raised
Through Debt Or Equity).
10. The Cost Of Equity Is Usually Reported On The Income Statement Right Below
Interest Expense.
⊚ True
⊚ False
ANS: False
The Cost Of Equity Is Not Reported On The Income Statement. It Is An Internal Measure
Used To Assess The Return Required By Equity Investors, Typically Calculated Using
Models Like The Capital Asset Pricing Model (Capm). Interest Expense, On The Other
Hand, Is Reported On The Income Statement And Relates To The Cost Of Debt.
11. The United States Was One Of The First Countries To Adopt International Financial
Reporting Standards.
⊚ True
⊚ False
ANS: False
The United States Has Not Yet Fully Adopted International Financial Reporting
Standards (Ifrs). While Many Other Countries Have Adopted Ifrs, The U.S. Continues To
,Use Generally Accepted Accounting Principles (Gaap) For Financial Reporting. The U.S.
Securities And Exchange Commission (Sec) Has Explored The Possibility Of Ifrs
Adoption, But It Has Not Been Fully Implemented.
MULTIPLE CHOICE
Choose The One Alternative That Best Completes The Statement Or Answers The Question.
12) Which Of The Following Statements Concerning A Firm’s Cash Flows And Profits Is
False?
A) Managers Must Be At Least As Concerned With Cash Flows As With Profits.
B) A Company That Sells Merchandise At A Profit Can Be Assured Of Generating Cash
Soon Enough To Replenish Cash Flows Required For Continued Production.
C) The Cash Flows Generated In A Given Time Period Can Differ From The Profits
Reported.
D) Profits Are No Assurance That Cash Flow Will Be Sufficient To Maintain Solvency.
E) Due To Required Cash Investments In Current Assets, Fast-Growing And Profitable
Companies Can Literally “Grow Broke”.
ANS: B
Profit Does Not Guarantee That A Company Will Generate Sufficient Cash Flow. Even If
A Company Is Profitable, It May Face Delays In Receiving Cash, For Example, Due To
Accounts Receivable Or Inventory. Profitability And Cash Flow Are Distinct Concepts,
And Cash Flows Must Be Monitored Closely To Avoid Liquidity Issues.
13) Which Of The Following Is Not A Typical Reason For Differences Between Profits
And Cash Flow?
A) Goodwill
B) Depreciation Expense
C) Changes In Accounts Receivable
,D) Accrual Accounting Practices
ANS: A
Goodwill Is An Intangible Asset That Is Not Directly Involved In The Cash Flow
Process. In Contrast, Depreciation, Changes In Accounts Receivable, And Accrual
Accounting Practices Affect Cash Flows Because They Involve Timing Differences
Between When Revenue/Expenses Are Recognized And When Cash Is Received Or
Paid.
14) Which One Of The Following Is The Financial Statement That Shows A Financial
Snapshot, Taken At A Point In Time, Of All The Assets The Company Owns And All
The Claims Against Those Assets?
A) Income Statement
B) Creditor’s Statement
C) Balance Sheet
D) Cash Flow Statement
E) Sources And Uses Statement
ANS: C
The Balance Sheet Provides A Snapshot Of A Company's Financial Position At A
Specific Point In Time, Detailing Assets, Liabilities, And Equity. The Income Statement,
On The Other Hand, Summarizes Performance Over A Period.
15) A Balance Sheet Reports The Value Of A Firm’s Assets, Liabilities, And Equity
A) Over An Annual Period.
B) Over Any Period Of Time.
C) At Any Point In Time.
D) At The End Of The Year Only.
ANS: C
,The Balance Sheet Reflects The Financial Position Of A Company At A Specific Point In
Time. Unlike The Income Statement, Which Covers A Period, The Balance Sheet
Captures Data At A Particular Date.
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.
ANS: B
The Company Receives $250,000 In Cash, So Cash Increases By This Amount. The Net
Plant And Equipment Account Decreases By The Book Value Of The Equipment, Which
Is $100,000. The Difference Between The Sale Price And The Book Value ($250,000 -
$100,000 = $150,000) Is Added To Equity.
17) A Company Purchases A New $10 Million Building Financed Half With Cash And
Half With A Bank Loan. How Would This Transaction Affect The Company’s Balance
Sheet?
A) Net Plant And Equipment Rises $10 Million; Cash Falls $10 Million; Bank Debt
Rises $5 Million.
B) Net Plant And Equipment Rises $5 Million; Cash Falls $10 Million; Bank Debt Rises
$5 Million.
C) Net Plant And Equipment Rises $5 Million; Cash Falls $5 Million; Bank Debt Rises
$5 Million.
D) Net Plant And Equipment Rises $10 Million; Cash Falls $5 Million; Bank Debt Rises
$5 Million.
ANS: D
, The Company Acquires A $10 Million Building, Which Increases Net Plant And
Equipment. The Building Is Financed With Half Cash ($5 Million) And Half Debt ($5
Million), Which Explains The Changes To Cash And The Bank Debt Accounts.
18) Which One Of The Following Is The Financial Statement That Summarizes A Firm’s
Revenue And Expenses Over A Period Of Time?
A) Income Statement
B) Balance Sheet
C) Cash Flow Statement
D) Sources And Uses Statement
E) Market Value Statement
ANS: A
The Income Statement Summarizes The Company's Revenues, Expenses, And Profits
Over A Specific Period Of Time (E.G., Quarterly Or Annually).
19) The Sources And Uses Of Cash Over A Stated Period Of Time Are Reflected In The
A) Income Statement.
B) Balance Sheet.
C) Shareholders’ Equity Statement.
D) Cash Flow Statement.
E) Statement Of Operating Position.
ANS: D
The Cash Flow Statement Tracks The Sources (E.G., Inflows) And Uses (E.G., Outflows)
Of Cash Over A Period, Providing Insights Into A Company’s Liquidity And Financial
Flexibility.
20) Which One Of The Following Is A Source Of Cash?
A) Increase In Accounts Receivable
B) Decrease In Notes Payable
