FIN 331, CHAP 3

Net working capital is defined as:

A. the depreciated book value of a firm’s fixed assets
B. the value of a firm’s current assets
C. available cash minus current liabilities
D. total assets minus total liabilities
E. current assets minus current liabilities

E, current assets minus current liabilities

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:

A. statement of cash flows
B. income statement
C. GAAP statement
D. balance sheet
E. net working capital schedule

B, income statement

The financial statement that summarizes a firm’s accounting value as of a particular date is called the:

A. income statement
B. cash flow statement
C. liquidity position
D. balance sheet
E. periodic operating statement

D, balance sheet

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

A. average tax rate
B. variable tax rate
C. marginal tax rate
D. absolute tax rate
E. contingent tax rate

A, average tax rate

Which one of the following is the tax rate that applies to the next dollar of taxable income that a firm earns?

A. average tax rate
B. variable tax rate
C. marginal tax rate
D. absolute tax rate
E. contingent tax rate

C, marginal tax rate

Cash flow from assets is defined as:

A. the cash flow to shareholders minus the cash flow to creditors
B. operating cash flow plus the cash flow to creditors plus the cash flow to shareholders
C. operating cash flow minus the change in net working capital minus net capital spending
D. operating cash flow plus net capital spending plus the change in net working capital
E. cash flow to shareholders minus net capital spending plus the change in net working capital

C, operating cash flow minus the change in net working capital minus net capital spending

Operating cash flow is defined as:

A. a firm’s net profit over a specified period of time
B. the cash that a firm generates from its normal business activities
C. a firm’s operating margin
D. the change in the net working capital over a state period of time
E. the cash that is generated and added to retained earnings

B, the cash that a firm generates from its normal business activities

Which one of the following has nearly the same meaning as free cash flow?

A. net income
B. cash flow from assets
C. operating cash flow
D. cash flow to shareholders
E. addition to retained earnings

B, cash flow from assets

Cash flow to creditors is defined as:

A. interest paid minus net new borrowing
B. interest paid plus net new borrowing
C. the operating cash flow minus net capital spending minus change in net working capital
D. dividends paid plus net new borrowing
E. cash flow from assets plus net new equity

A, interest paid minus net new borrowing

Cash flow to stockholders is defined as:

A. cash flow from assets plus cash flow to creditors
B. operating cash flow minus cash flow to creditors
C. dividends paid plus the change in retained earnings
D. dividends paid minus net new equity raised
E. net income minus the addition to retained earnings

D, dividends paid minus net new equity raised

Which one of the following is an intangible fixed asset?

A. inventory
B. machinery
C. copyright
D. account receivable
E. building

C, copyright

Which one of the following is included in net working capital?

A. land
B. accounts payable
C. equipment
D. depreciation
E. dividend

B, account payable

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm’s net working capital:

A. had to increase
B. had to decrease
C. could have remained constant if the amount of the decrease in current assets equaled the amount of the increase in current liabilities
D. could have either increased, decreased, or remained constant
E. was unaffected as the changed occurred in the firm’s current accounts

B, had to decrease