Question 1

Free cash ﬂow is best described as:

Accepted Answer

Free cash flow is the cash generated by a company after accounting for capital expenditures and changes in working capital. It is also referred to as cash flow from assets. None of the other choices accurately describe free cash flow.

Question 2

The use of debt in a ﬁrm's capital structure is called:

Accepted Answer

The use of debt in a firm's capital structure is referred to as financial leverage. This is because debt allows the firm to magnify the effects of earnings on equity.

Question 3

A(n) _________ asset is one which can be quickly converted into cash without signiﬁcant loss in value.

Accepted Answer

A liquid asset is one which can be quickly converted into cash without significant loss in value. Examples of liquid assets are cash and cash equivalents, marketable securities, and certain types of investments. Current assets are assets that are expected to be converted into cash within one year, including both liquid assets and assets such as accounts receivable. Fixed assets are long-term assets that are used to help generate revenue and include things like property and equipment. Intangible assets refer to non-physical assets, such as intellectual property or brand recognition. Long-term assets are assets that are expected to be held for more than one year, such as long-term investments or property.

Question 4

An increase in which of the following will cause operating cash ﬂow to decrease, all else the same? I. Interest expense.
II) Depreciation.
III) Taxes paid.

Accepted Answer

An increase in taxes paid will directly reduce the operating cash flow, as it is a cash outflow. Interest expense does not affect operating cash flow as it is part of financing activities, and depreciation is a non-cash expense that does not directly reduce cash flow.

Question 5

Which of the following assets is generally considered to be the least liquid?

Accepted Answer

The answer of Which of the following assets is generally...

Question 6

All else constant, the cash ﬂow to stockholders:

Accepted Answer

The cash flow to stockholders increases when dividends per share are increased, as dividends represent a cash payment to stockholders. The other options do not necessarily lead to an increase in cash flow to stockholders.

Question 7

The ___________ tax rate is the rate that applies if one more dollar of income is earned and the ___________ tax rate is the total tax bill divided by taxable income.

Accepted Answer

The marginal tax rate is the rate that applies if one more dollar of income is earned, and the average tax rate is the total tax bill divided by taxable income. Therefore, the best choice is B: marginal; average.

Question 8

The common set of standards and procedures by which audited ﬁnancial statements are prepared is known as:

Accepted Answer

Generally Accepted Accounting Principles (GAAP) are a common set of standards and procedures that govern how audited financial statements are prepared. They ensure consistency and comparability in financial reporting of organizations. Options A, B, D, and E are not relevant to the question.

Question 9

Shareholders' equity:

Accepted Answer

Shareholders' equity includes retained earnings, which are the cumulative earnings retained by the firm. It does not include long-term debt or the book value of bonds, and it is not equivalent to the market value of shares. Dividends greater than net income would decrease equity.

Question 10

Cash ﬂow from assets is also known as the ﬁrm's ______________.

Accepted Answer

Cash flow from assets, also known as free cash flow, represents the remaining cash flow available to the firm after all expenses, capital expenditures, and taxes have been paid. It is an important metric for investors as it indicates the firm's ability to generate cash from its operations.

Question 11

The earnings per share will:

Accepted Answer

Earnings per share (EPS) is calculated as net income divided by the number of shares outstanding. If the number of shares outstanding decreases, EPS will increase, assuming net income remains constant.

Question 12

Operating cash ﬂow is deﬁned as the cash ﬂow:

Accepted Answer

Operating cash flow refers to the cash generated or used in a company's normal or daily business operations, such as sales, expenses, and inventory management. It does not include cash flows related to financing or investing activities.

Question 13

Book value:

Accepted Answer

Book value is based on historical cost, which reflects the original cost of an asset when it was acquired, and not its current market value. Therefore, it does not adjust to the current market value of the asset.

Question 14

When a ﬁrm initially acquires debt to help ﬁnance its operations, it is said that the ﬁrm is:

Accepted Answer

When a firm acquires debt to help finance its operations, it is employing financial leverage. This means that the firm is using borrowed funds to increase the potential returns for shareholders, but it also increases the financial risk for the firm.

Question 15

Intangible assets ________.

Accepted Answer

Intangible assets include patents among other things and are classified separately from physical assets on the statement of financial position. Option A,E are incorrect as the liquidity and value of intangible assets varies and option B is incorrect as intangible assets are typically classified after accounts receivable. Option D is also incorrect as intangible assets are non-physical assets.

Question 16

Which of the following is a component of cash ﬂow to creditors? I. Interest paid.
II) Net new borrowing.
III) Dividends paid.

Accepted Answer

I) Interest paid is a component of cash flow to creditors as it represents the cash outflow from the company to pay the interest on their debts.
II) Net new borrowing is also a component of cash flow to creditors as it represents the cash inflow from new borrowing or the cash outflow from the repayment of existing debts.
III) Dividends paid is not a component of cash flow to creditors as it represents the cash outflow from the company to its shareholders, who are not creditors. Dividends are included in cash flow to investors.

Question 17

An increase in the ﬁnancial leverage of a ﬁrm as a result of an increase in outstanding debt __________ the potential reward to stockholders while ___________ the risk of ﬁnancial distress
Or bankruptcy.

Accepted Answer

An increase in financial leverage by taking on more debt can increase the potential rewards to stockholders due to the tax shield on interest payments and potential higher returns on equity. However, it also increases the risk of financial distress or bankruptcy due to the higher obligation to meet debt repayments.

Question 18

Net working capital is deﬁned as:

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. This measure is used to evaluate a company's short-term liquidity position and its ability to meet current obligations.

Question 19

The cash generated from a ﬁrm's normal business activities is called:

Accepted Answer

The cash generated from a firm's normal business activities is called operating cash flow. This includes cash inflows from sales revenue and outflows for operating expenses, such as salaries, rent, and utilities.

Question 20

Earnings per share is equal to:

Accepted Answer

The answer of Earnings per share is equal to:
...

Quiz 2: Financial Statements, Taxes, and Cash Flow

Free cash ﬂow is best described as:

The use of debt in a ﬁrm's capital structure is called:

A(n) _________ asset is one which can be quickly converted into cash without signiﬁcant loss in value.

An increase in which of the following will cause operating cash ﬂow to decrease, all else the same? I. Interest expense. II) Depreciation. III) Taxes paid.

Which of the following assets is generally considered to be the least liquid?

All else constant, the cash ﬂow to stockholders:

The _ tax rate is the rate that applies if one more dollar of income is earned and the _ tax rate is the total tax bill divided by taxable income.

The common set of standards and procedures by which audited ﬁnancial statements are prepared is known as:

Shareholders' equity:

Cash ﬂow from assets is also known as the ﬁrm's ______________.

The earnings per share will:

Operating cash ﬂow is deﬁned as the cash ﬂow:

Book value:

When a ﬁrm initially acquires debt to help ﬁnance its operations, it is said that the ﬁrm is:

Intangible assets ________.

Which of the following is a component of cash ﬂow to creditors? I. Interest paid. II) Net new borrowing. III) Dividends paid.

An increase in the ﬁnancial leverage of a ﬁrm as a result of an increase in outstanding debt the potential reward to stockholders while _ the risk of ﬁnancial distress Or bankruptcy.

Net working capital is deﬁned as:

The cash generated from a ﬁrm's normal business activities is called:

Earnings per share is equal to:

Quiz 2: Financial Statements, Taxes, and Cash Flow

Free cash ﬂow is best described as:

The use of debt in a ﬁrm's capital structure is called:

A(n) _________ asset is one which can be quickly converted into cash without signiﬁcant loss in value.

An increase in which of the following will cause operating cash ﬂow to decrease, all else the same? I. Interest expense. II) Depreciation. III) Taxes paid.

Which of the following assets is generally considered to be the least liquid?

All else constant, the cash ﬂow to stockholders:

The ___________ tax rate is the rate that applies if one more dollar of income is earned and the ___________ tax rate is the total tax bill divided by taxable income.

The common set of standards and procedures by which audited ﬁnancial statements are prepared is known as:

Shareholders' equity:

Cash ﬂow from assets is also known as the ﬁrm's ______________.

The earnings per share will:

Operating cash ﬂow is deﬁned as the cash ﬂow:

Book value:

When a ﬁrm initially acquires debt to help ﬁnance its operations, it is said that the ﬁrm is:

Intangible assets ________.

Which of the following is a component of cash ﬂow to creditors? I. Interest paid. II) Net new borrowing. III) Dividends paid.

An increase in the ﬁnancial leverage of a ﬁrm as a result of an increase in outstanding debt __________ the potential reward to stockholders while ___________ the risk of ﬁnancial distress Or bankruptcy.

Net working capital is deﬁned as:

The cash generated from a ﬁrm's normal business activities is called:

Earnings per share is equal to:

The _ tax rate is the rate that applies if one more dollar of income is earned and the _ tax rate is the total tax bill divided by taxable income.

An increase in the ﬁnancial leverage of a ﬁrm as a result of an increase in outstanding debt the potential reward to stockholders while _ the risk of ﬁnancial distress Or bankruptcy.