Mini Case

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Quiz chapter 2

1. __________ refers to the change in the firm's current assets relative to its current liabilities over some time period. A) Operating cash flow
B) Capital spending
C) Cash flow to creditors
D) Cash flow from assets
E) Additions to net working capital

2. If total assets = $550, fixed assets = $375, current liabilities = $140, equity = $265, long term debt = $145, and current assets is the only remaining item on the balance sheet, what is the value of net working capital? A) -$265

B) $230
C) $190
D) $35
E) $265

3. Which of the following is NOT typically characterized as a current asset? A) Inventory
B) Cash on hand
C) Patents
D) Accounts receivable
E) Marketable securities

4. Under GAAP, balance sheet assets are
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. Which of the following accurately describes the relation between book and market value? 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. Which of the following would decrease the financial leverage of a firm? A) Net new equity is sold and existing bonds are paid off. B)...
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