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1
A) Operating cash flow B) Capital spending C) Cash flow to creditors D) Cash flow from assets E) Additions to net working capital 2
A) -$265 B) $230 C) $190 D) $35 E) $265 3
A) Inventory B) Cash on hand C) Patents D) Accounts receivable E) Marketable securities 4
A) only carried on the books if they are relatively liquid B) carried on the books at historic cost C) carried on the books at market value D) listed in order of increasing relative liquidity E) carried at the larger of historic cost and market value 5
A) Financial managers should rely on book values, and not market values, when making decisions for the firm, because the firm's tax liability is based on book values. B) Financial managers should rely on market values, and not book values, when making decisions for the firm, because the firm's tax liability is based on market values. C) Market value always exceeds book value. D) The market value of current assets is often difficult to determine, and thus of little value to the decision making process of financial managers. E) Book value is an accounting summary of value and is inferior to market value as a source of current information regarding the true value of the firm. 6
A) Net new equity is sold and existing bonds are paid off. B) Total debt increases and total assets remain constant. C) Total assets increase and the debt to equity ratio remains constant. D) Net new bonds are sold and outstanding common stock is repurchased. E) Net new bonds are sold and short-term notes payable are paid off. 7
A) The cash flow identity states that all net cash flows earned by the firm are distributed in whole to its creditors and shareholders. B) The book value of an asset on the balance sheet can be very different from its market value. C) Net income as calculated from the income statement is not the net cash flow of the firm. D) Non-cash items are expenses charged against revenues that do not directly affect cash flow. E) While marginal and average tax rates often differ, it is the average tax rate that is relevant for most financial decisions. 8
A) -$4 million B) $4 million C) $50 million D) $27 million E) $23 million 9
A) $76,750 B) $72,250 C) $21,250 D) $85,250 E) $93,350 10
A) 15.0% B) 34.9% C) 25.9% D) 38.2% E) 42.2%
2002 McGraw-Hill Higher Education