BUSI408 Chapter 2 Questions & Answers
-Average Tax Rate is total taxes paid, divided by taxable income
for the period
Average vs. marginal tax rate
-Marginal Tax Rate is the rate paid on the last dollar earned or the
next dollar that will be earned
cash flow from assets = cash flow to creditors + cash flow to
Cash Flow Equation
stockholders
Cash flow to creditors equation interest paid - net new borrowing
Cash flow to stockholders dividends paid - net new equity raised
equation
-assets are either current or fixed
Describe the types & conditions
-fixed assets are either tangible or intangible
of assets
-current assets' life is less than 1 year
In the long run, costs are variable. In the short term, some are
Explain time & costs
fixed and some are variable
How is the income statement The income statement contains non cash items (like depreciation)
different from cash flow?
Income Statement Equation Revenues - Expenses = Income
market value-amount of $ we would get if sold
Market vs. book value
book value-value shown on the balance sheet
Shareholders' Equity Assets - Liabilities
The difference between the money coming in and the money
What is cash flow?
going out of a business
What is cash flow to creditors the net payment to creditors & owners during the year
and stockholders?
What is included in cash flow Operating cash flow, capital spending, and change in networking
from assets? capital
the speed and ease an asset can be converted to cash without
What is liquidity? significant loss of value
-current assets are more liquid, and fixed are illiquid
Net spending on fixed assets
What is net capital spending?
Net capital spending=$ spent on net fixed assets- $ received from
What is the equation?
sale of fixed assets
What is networking capital? current assets - current liabilities
Operating cash flow is cash flow from day to day producing and
What is operating cash flow?
selling
What is the equation?
Operating cash flow=revenue-costs
a snapshot of what the firm owns (assets) & owes (liabilities), & the
What is the balance sheet?
difference between the two (equity) at a given time
-Average Tax Rate is total taxes paid, divided by taxable income
for the period
Average vs. marginal tax rate
-Marginal Tax Rate is the rate paid on the last dollar earned or the
next dollar that will be earned
cash flow from assets = cash flow to creditors + cash flow to
Cash Flow Equation
stockholders
Cash flow to creditors equation interest paid - net new borrowing
Cash flow to stockholders dividends paid - net new equity raised
equation
-assets are either current or fixed
Describe the types & conditions
-fixed assets are either tangible or intangible
of assets
-current assets' life is less than 1 year
In the long run, costs are variable. In the short term, some are
Explain time & costs
fixed and some are variable
How is the income statement The income statement contains non cash items (like depreciation)
different from cash flow?
Income Statement Equation Revenues - Expenses = Income
market value-amount of $ we would get if sold
Market vs. book value
book value-value shown on the balance sheet
Shareholders' Equity Assets - Liabilities
The difference between the money coming in and the money
What is cash flow?
going out of a business
What is cash flow to creditors the net payment to creditors & owners during the year
and stockholders?
What is included in cash flow Operating cash flow, capital spending, and change in networking
from assets? capital
the speed and ease an asset can be converted to cash without
What is liquidity? significant loss of value
-current assets are more liquid, and fixed are illiquid
Net spending on fixed assets
What is net capital spending?
Net capital spending=$ spent on net fixed assets- $ received from
What is the equation?
sale of fixed assets
What is networking capital? current assets - current liabilities
Operating cash flow is cash flow from day to day producing and
What is operating cash flow?
selling
What is the equation?
Operating cash flow=revenue-costs
a snapshot of what the firm owns (assets) & owes (liabilities), & the
What is the balance sheet?
difference between the two (equity) at a given time
