Test Bank for Fundamentals of Corporate Finance Canadian

Canadian 8th Edition by Ross ISBN 0071051600

9780071051606
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02
Student:

1. Patents on new anti-cholesterol drug are considered intangible fixed assets.

True False
2. The financial statement summarizing the value of a firm's equity on a particular date is the statement of
comprehensive income.
True False
3. According to generally accepted accounting principles (GAAP), assets are generally shown on financial
statements at the higher of current market value or historical cost.
True False
4. Noncash items refer to expenses charged against revenues that do not directly affect cash flow.
True False
5. If a firm's cash flow to stockholders is negative, then total dividends must have exceeded the value of net
new equity sold by the firm during the year.
True False
6. Conceptually, capital cost allowance (CCA) is equivalent to depreciation
True False
7. A firm's marginal tax rate may differ from its average tax rate. However, it is the average tax rate that is
relevant for financial decision-making purposes.
True False
8. The financial statement summarizing a firm's performance over a period of time is the statement of cash
flows
True False
9. The difference between a firm's current assets and its current liabilities is called net working capital
True False
10. Net income divided by the total number of outstanding shares is referred to as the profit margin.
True False
11. The financial statement showing a firm's accounting value on a particular date is the:
A. Statement of comprehensive income.
 B. Statement of financial position.
C. Statement of cash flows.
D. Tax reconciliation statement.
E. Shareholders' equity sheet.
12. A current asset is:
A. An item currently owned by the firm.
B. An item that the firm expects to own within the next year.
C. An item currently owned by the firm that will convert to cash within the next 12 months.
D. The amount of cash on hand the firm currently shows on its statement of financial position.
E. The market value of all the items currently owned by the firm.
13. normally must be paid by a firm within 12 months.
A. Long-term bank loans
B. Current liabilities
C. Bonds
D. Marketable securities
E. Accounts receivable
14. The long-term debts of a firm are:
A. Liabilities that come due within the next 12 months.
B. Liabilities that do not come due for at least 12 months.
C. Liabilities owed to the firm's suppliers.
D. Liabilities owed to the firm's shareholders.
E. Liabilities the firm expects to incur within the next 12 months.
15. Net working capital is defined as:
A. Total liabilities minus shareholders' equity.
B. Current liabilities minus shareholders' equity.
C. Fixed assets minus shareholders' equity.
D. Total assets minus total liabilities.
E. Current assets minus current liabilities.
16. refers to the difference between a firm's current assets and its current liabilities.
A. Operating cash flow
B. Capital spending.
C. Net working capital.
D. Cash flow from assets.
E. Cash flow to creditors.
17. A(n) asset is one which can be quickly converted into cash without significant loss in
value.
A. Current.
B. Fixed.
C. Intangible.
D. Liquid.
E. Long-term.
18. Financial leverage refers to:
A. The proportion of debt used in a firm's capital structure.
B. The ratio of retained earnings to shareholders' equity.
C. The ratio of paid-in surplus to shareholders' equity.
D. The ratio of cost-of-goods-sold to total sales.
E. The amount of receivables present in the firm's asset structure.
19. The common set of standards and procedures by which audited financial statements are prepared is
known as:
A. The matching principle.
B. The cash flow identity.
C. Generally Accepted Accounting Principles (GAAP).
D. The Freedom of Information Act (FOIA).
E. The 1993 Omnibus Budget Reconciliation Act.
20. The financial statement summarizing a firm's performance over a period of time is the:
A. Statement of comprehensive income.
B. Statement of financial position.
C. Statement of cash flows.
D. Tax reconciliation statement.
E. Shareholders' equity sheet.
21. Earnings per share are equal to:
A. Net income divided by the total number of shares outstanding.
B. Net income divided by the par value of common stock.
C. Gross income multiplied by the par value of common stock.
D. Operating income divided by the par value of common stock.
E. Net income divided by total stockholders' equity.
22. Dividends per share are equal to:
A. Dividends paid divided by the par value of common stock.
B. Dividends paid divided by the total number of shares outstanding.
C. Dividends paid divided by total stockholders' equity.
D. Dividends paid multiplied by the par value of common stock.
E. Dividends paid multiplied by the total number of shares outstanding.
23. Non-cash items are:
A. The credit sales of a firm.
B. The accounts payable of a firm.
C. Expenses incurred for the purchase of intangible fixed assets.
D. Expenses charged against revenues that do not directly affect cash flow.
E. All accounts on the statement of financial position other than cash on hand.
24. refers to the cash flow that results from the firm's ongoing, normal business
activities.
A. Operating cash flow.
B. Capital spending.
C. Net working capital.
D. Cash flow from assets.
E. Cash flow to creditors.
25. refers to the net spending of the firm on fixed asset purchases.
A. Operating cash flow.
B. Capital spending.
C. Net working capital.
D. Cash flow from assets.
E. Cash flow to creditors.
26. refers to the net total cash flow of the firm accruing to its creditors and stockholders.
A. Operating cash flow.
B. Capital spending.
C. Net working capital.
D. Cash flow from assets.
E. Cash flow to creditors.
27. Cash flow from assets is also known as the firm's .
A. Capital structure.
B. Equity structure.
C. Hidden cash flow.
D. Free cash flow.
E. Historical cash flow.
28. refers to the firm's interest payments less any net new borrowing.
A. Operating cash flow.
B. Capital spending.
C. Net working capital.
D. Cash flow from assets.
E. Cash flow to creditors.
29. refers to the firm's dividend payments less any net new equity raised.
A. Operating cash flow.
B. Capital spending.
C. Net working capital.
D. Cash flow from assets.
E. Cash flow to stockholders.
30. Your tax rate is the amount of tax payable on the next dollar you earn.
A. Deductible.
B. Residual.
C. Total.
D. Average.
E. Marginal.
31. Your tax rate measures the total taxes you pay divided by your taxable income.
A. Deductible.
B. Residual.
C. Total.
D. Average.
E. Marginal.
32. 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.
A. Marginal; flat
B. Marginal; average
C. Flat; marginal
D. Flat; average
E. Average; marginal
33. A current asset:
A. Has a life of less than one year.
B. Includes accounts payable.
C. Is an illiquid asset.
D. Is included in the statement of comprehensive income.
E. Is part of shareholders' equity.
34. Current assets minus current liabilities are referred to as:
A. Tangible assets.
B. Net working capital.
C. Net income.
D. Net assets.
E. Net book value.
35. The statement of financial position:
A. Reflects the income and expenses incurred year-to-date.
B. Reflects the income and expenses for the current month only.
C. Reflects the financial status of the firm as of a particular date.
D. Reflects the cash flows of a firm over a period of time.
E. Reflects the current market value of the firm.
36. Which of the following statements is true?
A. Liabilities equal assets plus shareholders' equity.
B. Shareholders' equity equals assets plus liabilities.
C. Shareholders' equity equals liabilities minus assets.
D. Assets equal liabilities plus shareholders' equity.
E. Assets equal liabilities minus shareholders' equity.
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