ZCORPORATE FINANCE - CHAPTER 2
100% SOLVED QUESTIONS AND
ANSWERS
According to GAAP, when is income reported? - When it is earned or accrued
The balance sheet identity shows that stockholders' equity equals assets __________ liabilities. - Minus
Which of these questions can be answered by reviewing a firm's balance sheet?
a) How much debt is used to finance the firm?
b)How much of the firm's net income was paid out in dividends?
c) How much net income has the firm earned this period?
d) What is the total amount of assets the firm owns? - a) How much debt is used to finance the firm?
d) What is the total amount of assets the firm owns?
Net working capital equals _____. - Current assets minus current liabilities
Which of the following are components of cash flow from assets?
a) capital spending
b) operating cash flow
c) net new borrowing
d) net new equity
e) change in net working capital - a) capital spending
b) operating cash flow
e) change in net working capital
The price at which willing buyers and sellers would trade is called ________ value. - Market
Physical assets are termed _________ assets. - Tangible
Which of the following is an example of a non-cash item on a n income statement? - Depreciation
Depreciation is the accountant's estimate of the cost of ______ used in the production process matched
with the benefits produced from owning it. - Fixed Assets
Equipment
, The last item (or "bottom line") on the income statement is typically the _______. - Net Income
Financial leverage refers to a firm's _______. - use of debt in its capital structure
Marginal tax rates are the most important tax rates because:
a) incremental cash flows are taxed at marginal tax rates
b) because the IRS says so
c) financial decisions are usually based on new cash flows
d) financial decisions are usually based on previous changes in cash flows - a) incremental cash flows are
taxed at marginal tax rates
c) financial decisions are usually based on new cash flows
Liquidity refers to the ease of changing ______. - Assets to cash
For a mature firm, operating cash flow:
a) is usually negative
b) cannot be positive for long periods
c) is usually positive
d) is a sign of trouble if negative over a long period of time - c) is usually positive
d) is a sign of trouble if negative over a long period of time
Which of the following is NOT a component of cash flow from assets?
a) capital spending
b) change in net working capital
c) operating cash flow
d) financial expenses - financial expenses
Assets can be categorized as - Current and fixed assets
A balance sheet reflects on a firm's - Accounting value on a specific date
Under GAAP, assets are generally carried on a firm's balance sheet at _______. - Historical Cost
Book Value
What does shareholders' equity represent? - A residual claim against the firm's total assets
According to GAAP, when is revenue recognized on an income statement?
a) When the earnings process is virtually completed
b) After the related expenses are paid in full
100% SOLVED QUESTIONS AND
ANSWERS
According to GAAP, when is income reported? - When it is earned or accrued
The balance sheet identity shows that stockholders' equity equals assets __________ liabilities. - Minus
Which of these questions can be answered by reviewing a firm's balance sheet?
a) How much debt is used to finance the firm?
b)How much of the firm's net income was paid out in dividends?
c) How much net income has the firm earned this period?
d) What is the total amount of assets the firm owns? - a) How much debt is used to finance the firm?
d) What is the total amount of assets the firm owns?
Net working capital equals _____. - Current assets minus current liabilities
Which of the following are components of cash flow from assets?
a) capital spending
b) operating cash flow
c) net new borrowing
d) net new equity
e) change in net working capital - a) capital spending
b) operating cash flow
e) change in net working capital
The price at which willing buyers and sellers would trade is called ________ value. - Market
Physical assets are termed _________ assets. - Tangible
Which of the following is an example of a non-cash item on a n income statement? - Depreciation
Depreciation is the accountant's estimate of the cost of ______ used in the production process matched
with the benefits produced from owning it. - Fixed Assets
Equipment
, The last item (or "bottom line") on the income statement is typically the _______. - Net Income
Financial leverage refers to a firm's _______. - use of debt in its capital structure
Marginal tax rates are the most important tax rates because:
a) incremental cash flows are taxed at marginal tax rates
b) because the IRS says so
c) financial decisions are usually based on new cash flows
d) financial decisions are usually based on previous changes in cash flows - a) incremental cash flows are
taxed at marginal tax rates
c) financial decisions are usually based on new cash flows
Liquidity refers to the ease of changing ______. - Assets to cash
For a mature firm, operating cash flow:
a) is usually negative
b) cannot be positive for long periods
c) is usually positive
d) is a sign of trouble if negative over a long period of time - c) is usually positive
d) is a sign of trouble if negative over a long period of time
Which of the following is NOT a component of cash flow from assets?
a) capital spending
b) change in net working capital
c) operating cash flow
d) financial expenses - financial expenses
Assets can be categorized as - Current and fixed assets
A balance sheet reflects on a firm's - Accounting value on a specific date
Under GAAP, assets are generally carried on a firm's balance sheet at _______. - Historical Cost
Book Value
What does shareholders' equity represent? - A residual claim against the firm's total assets
According to GAAP, when is revenue recognized on an income statement?
a) When the earnings process is virtually completed
b) After the related expenses are paid in full
