公司理财英文版题库

实用文档实用文档CHAPTER2FinancialStatements&CashFlowMultipleChoiceQuestions:BALANCESHEET1. Thefinancialstatementshowingafirm’saccountingvalueonaparticulardateisthe:incomestatement.balancesheet.statementofcashflows.taxreconciliationstatement.shareholders’equitysheet.Difficultylevel:EasyCURRENTASSETS2. Acurrentassetis:anitemcurrentlyownedbythefirm.anitemthatthefirmexpectstoownwithinthenextyear.anitemcurrentlyownedbythefirmthatwillconverttocashwithinthenext12months.theamountofcashonhandthefirmcurrentlyshowsonitsbalancesheet.themarketvalueofallitemscurrentlyownedbythefirm.Difficultylevel:EasyLONG-TERMDEBTb 3. Thelong-termdebtsofafirmareliabilities:thatcomeduewithinthenext12months.thatdonotcomedueforatleast12months.owedtothefirm’ssuppliers.owedtothefirm’sshareholders.thefirmexpectstoincurwithinthenext12months.Difficultylevel:EasyNETWORKINGCAPITALe 4. Networkingcapitalisdefinedas:totalliabilitiesminusshareholders’equity.currentliabilitiesminusshareholders’equity.fixedassetsminuslong-termliabilities.totalassetsminustotalliabilities.currentassetsminuscurrentliabilities.Difficultylevel:EasyLIQUIDASSETSd 5. A(n) assetisonewhichcanbequicklyconvertedintocashwithoutsignificantlossinvalue.currentfixedintangibleliquidlong-termDifficultylevel:EasyINCOMESTATEMENTa 6. Thefinancialstatementsummarizingafirm’sperformanceoveraperiodoftimeisthe:incomestatement.balancesheet.statementofcashflows.taxreconciliationstatement.shareholders’equitysheet.Difficultylevel:EasyNONCASHITEMS7. Noncashitemsreferto:thecreditsalesofafirm.theaccountspayableofafirm.thecostsincurredforthepurchaseofintangiblefixedassets.expenseschargedagainstrevenuesthatdonotdirectlyaffectcashflow.allaccountsonthebalancesheetotherthancashonhand.Difficultylevel:EasyMARGINALTAXRATES8. Your taxrateistheamountoftaxpayableonthenexttaxabledollaryouearn.deductibleresidualtotalaveragemarginalDifficultylevel:EasyAVERAGETAXRATESd 9. Your taxratemeasuresthetotaltaxesyoupaydividedbyyourtaxableincome.deductibleresidualtotalaveragemarginalDifficultylevel:EasyCASHFLOWFROMOPERATINGACTIVITIES10. referstothecashflowthatresultsfromthefirm’songoing,normalbusinessactivities.CashflowfromoperatingactivitiesCapitalspendingNetworkingcapitalCashflowfromassetsCashflowtocreditorsDifficultylevel:MediumCASHFLOWFROMINVESTING11. referstothechangesinnetcapitalassets.OperatingcashflowCashflowfrominvestingNetworkingcapitalCashflowfromassetsCashflowtocreditorsDifficultylevel:MediumNETWORKINGCAPITAL12. referstothedifferencebetweenafirm’scurrentassetsanditscurrentliabilities.OperatingcashflowCapitalspendingNetworkingcapitalCashflowfromassetsCashflowtocreditorsDifficultylevel:EasyCASHFLOWOFOPERATIONS13. referstothenettotalcashflowofthefirmavailablefordistributiontoitscreditorsandstockholders.OperatingcashflowCapitalspendingNetworkingcapitalCashflowfromoperationsCashflowtocreditorsCASHFLOWTOCREDITORS14. referstothefirm’sinterestpaymentslessanynetnewborrowing.OperatingcashflowCapitalspendingNetworkingcapitalCashflowfromshareholdersCashflowtocreditorsCASHFLOWTOSTOCKHOLDERSe 15. referstothefirm’sdividendpaymentslessanynetnewequityraised.OperatingcashflowCapitalspendingNetworkingcapitalCashflowfromcreditorsCashflowtostockholdersEARNINGSPERSHARE16.Earningspershareisequalto:incomedividedbytotalshareholders’equity.DIVIDENDSPERSHARE17.Dividendspershareisequaltodividendspaid:dividedbytheparvalueofcommonstock.dividedbythetotalnumberofsharesoutstanding.dividedbytotalshareholders’equity.multipliedbytheparvalueofthecommonstock.multipliedbythetotalnumberofsharesoutstanding.CONCEPTSCURRENTASSETS18.Whichofthefollowingareincludedincurrentassets?equipmentinventoryaccountspayablecashIIandIVonlyIandIIIonlyI,II,andIVonlyIIIandIVonlyII,III,andIVonlyCURRENTLIABILITIES19.Whichofthefollowingareincludedincurrentliabilities?notepayabletoasupplierineighteenmonthsdebtpayabletoamortgagecompanyinninemonthsaccountspayabletosuppliersloanpayabletothebankinfourteenmonthsIandIIIonlyIIandIIIonlyIIIandIVonlyII,III,andIVonlyI,II,andIIIonlyBALANCESHEETd 20.Anincreaseintotalassets:meansthatnetworkingcapitalisalsoincreasing.requiresaninvestmentinfixedassets.meansthatshareholders’equitymustalsoincrease.mustbeoffsetbyanequalincreaseinliabilitiesandshareholders’equity.canonlyoccurwhenafirmhaspositivenetincome.LIQUIDITYc 21.Whichoneofthefollowingaccountsisgenerallythemostliquid?inventorybuildingaccountsreceivableequipmentpatentLIQUIDITYe 22.Whichoneofthefollowingstatementsconcerningliquidityiscorrect?Ifyousoldanassettoday,itisaliquidasset.Ifyoucansellanassetnextyearatapriceequaltoitsactualvalue,theassetishighlyliquid.Trademarksandpatentsarehighlyliquid.Thelessliquidityafirmhas,thelowertheprobabilitythefirmwillencounterfinancialdifficulties.Balancesheetaccountsarelistedinorderofdecreasingliquidity.LIQUIDITYd 23.Liquidityis:ameasureoftheuseofdebtinafirm’scapitalstructure.equaltocurrentassetsminuscurrentliabilities.equaltothemarketvalueofafirm’stotalassetsminusitscurrentliabilities.valuabletoafirmeventhoughliquidassetstendtobelessprofitabletoown.generallyassociatedwithintangibleassets.SHAREHOLDERS’EQUITYd 24.Whichofthefollowingaccountsareincludedinshareholders’equity?interestpaidretainedearningscapitalsurpluslong-termdebtIandIIonlyIIandIVonlyIandIVonlyIIandIIIonlyIandIIIonlyBOOKVALUEb 25.Bookvalue:isequivalenttomarketvalueforfirmswithfixedassets.isbasedonhistoricalcost.generallytendstoexceedmarketvaluewhenfixedassetsareincluded.ismoreofafinancialthananaccountingvaluation.isadjustedtomarketvaluewheneverthemarketvalueexceedsthestatedbookvalue.MARKETVALUEa 26.Whenmakingfinancialdecisionsrelatedtoassets,youshould:alwaysconsidermarketvalues.placemoreemphasisonbookvaluesthanonmarketvalues.relyprimarilyonthevalueofassetsasshownonthebalancesheet.placeprimaryemphasisonhistoricalcosts.onlyconsidermarketvaluesiftheyarelessthanbookvalues.INCOMESTATEMENTd 27.Asseenonanincomestatement:erestexpenseisaddedtoearningsbeforeinterestandtaxestogetpretaxincome.EARNINGSPERSHAREa 28.Theearningspersharewill:increaseasnetincomeincreases.increaseasthenumberofsharesoutstandingincrease.decreaseasthetotalrevenueofthefirmincreases.increaseasthetaxrateincreases.decreaseasthecostsdecrease.DIVIDENDSPERSHAREe 29.Dividendspershare:increaseasthenetincomeincreasesaslongasthenumberofsharesoutstandingremainsconstant.decreaseasthenumberofsharesoutstandingdecrease,allelseconstant.areinverselyrelatedtotheearningspershare.arebaseduponthedividendrequirementsestablishedbyGenerallyAcceptedAccountingProcedures.areequaltotheamountofnetincomedistributedtoshareholdersdividedbythenumberofsharesoutstanding.REALIZATIONPRINCIPLE30.AccordingtoGenerallyAcceptedAccountingPrinciples,incomeisrecordedbasedontherealizationprinciple.depreciationisrecordedasitaffectsthecashflowsofafirm.MATCHINGPRINCIPLE31.AccordingtoGenerallyAcceptedAccountingPrinciples,costsare:recordedasincurred.recordedwhenpaid.matchedwithrevenues.matchedwithproductionlevels.expensedasmanagementdesires.NONCASHITEMSa 32.Depreciation:isanoncashexpensethatisrecordedontheincomestatement.increasesthenetfixedassetsasshownonthebalancesheet.reducesboththenetfixedassetsandthecostsofafirm.isanon-cashexpensewhichincreasesthenetoperatingincome.decreasesnetfixedassets,netincome,andoperatingcashflows.MARGINALTAXRATEc 33.Whenyouaremakingafinancialdecision,themostrelevanttaxrateisthe rate.averagefixedmarginaltotalvariableOPERATINGCASHFLOWa 34.Anincreaseinwhichoneofthefollowingwillcausetheoperatingcashflowtoincrease?depreciationchangeinnetworkingcapitalnetworkingcapitaltaxescostsCHANGEINNETWORKINGCAPITALe 35.Afirmstartsitsyearwithapositivenetworkingcapital.Duringtheyear,thefirmacquiresmoreshort-termdebtthanitdoesshort-termassets.Thismeansthat:theendingnetworkingcapitalwillbenegative.bothaccountsreceivableandinventorydecreasedduringtheyear.thebeginningcurrentassetswerelessthanthebeginningcurrentliabilities.accountspayableincreasedandinventorydecreasedduringtheyear.theendingnetworkingcapitalcanbepositive,negative,orequaltozero.CASHFLOWTOCREDITORSc 36.Thecashflowtocreditorsincludesthecash:receivedbythefirmwhenpaymentsarepaidtosuppliers.outflowofthefirmwhennewdebtisacquired.outflowwheninterestispaidonoutstandingdebt.inflowwhenaccountspayabledecreases.receivedwhenlong-termdebtispaidoff.CASHFLOWTOSTOCKHOLDERS37.Cashflowtostockholdersmustbepositivewhen:thedividendspaidexceedthenetnewequityraised.thenetsaleofcommonstockexceedstheamountofdividendspaid.noincomeisdistributedbutnewsharesofstockaresold.boththecashflowtoassetsandthecashflowtocreditorsarenegative.boththecashflowtoassetsandthecashflowtocreditorsarepositive.BALANCESHEET38. Whichequalityisthebasisforthebalancesheet?FixedAssets=Stockholder'sEquity+CurrentAssetsAssets=Liabilities+Stockholder'sEquityAssets=CurrentLong-TermDebt+RetainedEarningsFixedAssets=Liabilities+Stockholder'sEquityNoneoftheabove.BALANCESHEETa 39. Assetsarelistedonthebalancesheetinorderof:decreasingliquidity.decreasingsize.increasingsize.relativelife.Noneoftheabove.DEBTe 40. Debtisacontractualobligationthat:requiresthepayoutofresidualflowstotheholdersoftheseinstruments.requiresarepaymentofastatedamountandinterestovertheperiod.allowsthebondholderstosuethefirmifitdefaults.BothAandB.BothBandC.CARRYINGVALUEa 41. Thecarryingvalueorbookvalueofassets:isdeterminedunderGAAPandisbasedonthecostoftheasset.representsthetruemarketvalueaccordingtoGAAP.isalwaysthebestmeasureofthecompany'svaluetoaninvestor.isalwayshigherthanthereplacementcostoftheassets.Noneoftheabove.GAAP42. UnderGAAP,thevalueofallthefirm'sassetsarereportedat:rinsicvalue.cost.Noneoftheabove.INCOMESTATEMENT43. Whichofthefollowingstatementsconcerningtheincomestatementistrue?Itmeasuresperformanceoveraspecificperiodoftime.Itdeterminesafter-taxincomeofthefirm.Itincludesdeferredtaxes.Ittreatsinterestasanexpense.Alloftheabove.GAAPINCOMERECOGNITIONb 44. Accordinggenerallyacceptedaccountingprinciples(GAAP),revenueisrecognizedasincomewhen:acontractissignedtoperformaserviceordeliveragood.thetransactioniscompleteandthegoodsorservicesaredelivered.paymentisrequested.incometaxesarepaid.Alloftheabove.OPERATINGCASHFLOWb 45. Whichofthefollowingisnotincludedinthecomputationofoperatingcashflow?EarningsbeforeinterestandtaxesInterestpaidDepreciationCurrenttaxesAlloftheaboveareincluded.NETCAPITALSPENDINGb 46. Netcapitalspendingisequalto:incomeplusdepreciation.totalcashflowtostockholderslessinterestanddividendspaid.thechangeintotalassets.CASHFLOWTOSTOCKHOLDERSd 47. Cashflowtostockholdersisdefinedas:interestpayments.repurchasesofequitylesscashdividendspaidplusnewequitysold.cashflowfromfinancinglesscashflowtocreditors.cashdividendsplusrepurchasesofequityminusnewequityfinancing.Noneoftheabove.FREECASHFLOWd 48. Freecashflowis:incomeplustaxes.anincreaseinnetworkingcapital.cashflowinexcessofthatrequiredtofundprofitablecapitalprojects.Noneoftheabove.CASHFLOWd 49. Thecashflowofthefirmmustbeequalto:cashflowtoequityminuscashflowtodebtholders.cashflowtodebtholdersminuscashflowtoequity.cashflowtogovernmentspluscashflowtoequity.cashflowtoequitypluscashflowtodebtholders.Noneoftheabove.STATEMENTOFCASHFLOWS50. Whichofthefollowingareallcomponentsofthestatementofcashflows?Cashflowfromoperatingactivities,cashflowfrominvestingactivities,andcashflowfromfinancingactivitiesCashflowfromoperatingactivities,cashflowfrominvestingactivities,andcashflowfromdivestingactivitiesCashflowfrominternalactivities,cashflowfromexternalactivities,andcashflowfromfinancingactivitiesCashflowfrombrokeringactivities,cashflowfromprofitableactivities,andcashflowfromnon-profitableactivitiesNoneoftheabove.PROBLEMSCURRENTASSETS51.Afirmhas$300ininventory,$600infixedassets,$200inaccountsreceivables,$100inaccountspayable,and$50incash.Whatistheamountofthecurrentassets?a. $500b. $550c. $600d. $1,150e. $1,200NETWORKINGCAPITALb 52.Thetotalassetsare$900,thefixedassetsare$600,long-termdebtis$500,andshort-termdebtis$200.Whatistheamountofnetworkingcapital?$0b. $100c. $200d. $300e. $400LIQUIDITYd 53.Brad’sCompanyhasequipmentwithabookvalueof$500thatcouldbesoldtodayata50percentdiscount.Theirinventoryisvaluedat$400andcouldbesoldtoacompetitorforthatamount.Thefirmhas$50incashandcustomersowethem$300.Whatistheaccountingvalueoftheirliquidassets?a. $50b. $350c. $700d. $750e. $1,000BOOKVALUEc 54.Martha’sEnterprisesspent$2,400topurchaseequipmentthreeyearsago.Thisequipmentiscurrentlyvaluedat$1,800ontoday’sbalancesheetbutcouldactuallybesoldfor$2,000.Networkingcapitalis$200andlong-termdebtis$800.Whatisthebookvalueofshareholders’equity?a. $200b. $800c. $1,200d. $1,400e. Theanswercannotbedeterminedfromtheinformationprovided.NETINCOME55.Art’sBoutiquehassalesof$640,000costsof$480,000.Interestexpenseis$40,000anddepreciationis$60,000.Thetaxrateis34%.Whatisthenetincome?a. $20,400b. $39,600c. $50,400d. $79,600e. $99,600MARGINALTAXRATE56.Giventhetaxratesasshown,whatistheaveragetaxrateforafirmwithtaxableincomeof$126,500?TaxableIncome TaxRate$ 0-50,00015%50,001-75,00025%75,001-100,00034%100,001-335,00039%21.38percent23.88percent25.76percent34.64percent39.00percentTAXES57.Thetaxratesareasshown.Yourfirmcurrentlyhastaxableincomeof$79,400.Howmuchadditionaltaxwillyouoweifyouincreaseyourtaxableincomeby$21,000?TaxableIncome TaxRate$ 0-50,00015%50,001-75,00025%75,001-100,00034%100,001-335,00039%a. $7,004b. $7,014c. $7,140d. $7,160e. $7,174OPERATINGCASHFLOWd 58.Yourfirmhasnetincomeof$198ontotalsalesof$1,200.Costsare$715anddepreciationis$145.Thetaxrateis34percent.Thefirmdoesnothaveinterestexpenses.Whatistheoperatingcashflow?a. $93b. $241c. $340d. $383e. $485NETCAPITALSPENDINGc. 59.Teddy’sPillowshasbeginningnetfixedassetsof$480andendingnetfixedassetsof$530.Assetsvaluedat$300weresoldduringtheyear.Depreciationwas$40.Whatistheamountofcapitalspending?a. $10b. $50c. $90d. $260e. $390CHANGEINNETWORKINGCAPITALb 60.Atthebeginningoftheyear,afirmhascurrentassetsof$380andcurrentliabilitiesof$210.Attheendoftheyear,thecurrentassetsare$410andthecurrentliabilitiesare$250.Whatisthechangeinnetworkingcapital?a. -$30b. -$10c. $0d. $10e. $30CASHFLOWTOCREDITORSe 61.Atthebeginningoftheyear,long-termdebtofafirmis$280andtotaldebtis$340.Attheendoftheyear,long-termdebtis$260andtotaldebtis$350.Theinterestpaidis$30.Whatistheamountofthecashflowtocreditors?a. -$50b. -$20c. $20d. $30e. $50CASHFLOWTOCREDITORSa 62.Pete’sBoatshasbeginninglong-termdebtof$180andendinglong-termdebtof$210.Thebeginningandendingtotaldebtbalancesare$340and$360,respectively.Theinterestpaidis$20.Whatistheamountofthecashflowtocreditors?a. -$10$0c. $10d. $40e. $50CASHFLOWTOSTOCKHOLDERSa 63.PeggyGrey’sCookieshasnetincomeof$360.Thefirmpaysout40percentofthenetincometoitsshareholdersasdividends.Duringtheyear,thecompanysold$80worthofcommonstock.Whatisthecashflowtostockholders?a. $64b. $136c. $144d. $224e. $296CASHFLOWTOSTOCKHOLDERSa 64.Thompson’sJetSkishasoperatingcashflowof$218.Depreciationis$45andinterestpaidis$35.Anettotalof$69waspaidonlong-termdebt.Thefirmspent$180onfixedassetsandincreasednetworkingcapitalby$38.Whatistheamountofthecashflowtostockholders?a. -$104b. -$28c. $28d. $114e. $142Thefollowingbalancesheetandincomestatementshouldbeusedforquestions#65through#71:Nabors,Inc.2005IncomeStatement($inmillions)Netsales$9,610Less:Costofgoodssold6,310Less:Depreciation1,370Earningsbeforeinterestandtaxes1,930Less:Interestpaid630TaxableIncome$1,300Less:Taxes455Netincome$ 845Nabors,Inc.2004and2005BalanceSheets($inmillions)2004 2005 2004 2005Cash$ 2,570

$ 310$ 405 Accountspayable $2,720Accountsrec. 2,640 3,055 Notespayable 1000Inventory 3,275 3,850 Total $2,820$2,570Netfixedassets10,96010,670Commonstock5,0005,250Retainedearnings1,4902,060Totalassets$17,185$17,980Totalliab.&equity$17,185$17,980Total $6,225$Netfixedassets10,96010,670Commonstock5,0005,250Retainedearnings1,4902,060Totalassets$17,185$17,980Totalliab.&equity$17,185$17,9808,100CHANGEINNETWORKINGCAPITAL65.Whatisthechangeinthenetworkingcapitalfrom2004to2005?a. $1,235b. $1,035c. $1,335d. $3,405e. $4,740NONCASHEXPENSES66.Whatistheamountofthenon-cashexpensesfor2005?a. $570b. $630c. $845d. $1,370e. $2,000NETCAPITALSPENDING67.Whatistheamountofthenetcapitalspendingfor2005?a. -$290b. $795c. $1,080d. $1,660e. $2,165OPERATINGCASHFLOW68.Whatistheoperatingcashflowfor2005?a. $845b. $1,930c. $2,215d. $2,845e. $3,060CASHFLOWOFTHEFIRMa 69.Whatisthecashflowofthefirmfor2005?a. $430b. $485c. $1,340d. $2,590e. $3,100NETNEWBORROWINGe 70.Whatistheamountofnetnewborrowingfor2005?a. -$225b. -$25$0d. $25e. $225CASHFLOWTOCREDITORSd 71.Whatisthecashflowtocreditorsfor2005?a. -$405b. -$225c. $225d. $405e. $630Thefollowinginformationshouldbeusedforquestions#72through#79:Knickerdoodles,Inc.20042005Sales$740$785COGS430460Interest3335Dividends1617Depreciation250210Cash7075Accountsreceivables 563 502Currentliabilities390405Inventory662640Long-termdebt340410Netfixedassets1,6801,413Commonstock700235Taxrate35%35%NETWORKINGCAPITALd 72.Whatisthenetworkingcapitalfor2005?a. $345b. $405c. $805d. $812e. $1,005CHANGEINNETWORKINGCAPITAL73.Whatisthechangeinnetworkingcapitalfrom2004to2005?a. -$93b. -$7c. $7d. $85e. $97NETCAPITALSPENDING74.Whatisnetcapitalspendingfor2005?a. -$250b. -$57c. $0d. $57e. $477OPERATINGCASHFLOWb 75.Whatistheoperatingcashflowfor2005?a. $143b. $297c. $325d. $353e. $367CASHFLOWOFTHEFIRMd 76.Whatisthecashflowofthefirmfor2005?a. $50b. $247c. $297d. $447e. $517NETNEWBORROWINGd 77.Whatisnetnewborrowingfor2005?a. -$70b. -$35c. $35d. $70e. $105CASHFLOWTOCREDITORSb 78.Whatisthecashflowtocreditorsfor2005?a. -$170b. -$35c. $135d. $170e. $205CASHFLOWTOSTOCKHOLDERS79.Whatisthecashflowtostockholdersfor2005?a. $408b. $417c. $452d. $482e. $503Thefollowinginformationshouldbeusedforquestions#80through#82:2005Costofgoodssold Interest $215Dividends $160Depreciation $375Changeinretainedearnings Taxrate 35%TAXABLEINCOME80.Whatisthetaxableincomefor2005?a. $360b. $520c. $640d. $780e. $800OPERATINGCASHFLOWd 81.Whatistheoperatingcashflowfor2005?a. $520b. $800c. $1,015d. $1,110e. $1,390SALESc 82.Whatarethesalesfor2005?a. $4,225b. $4,385c. $4,600d. $4,815e. $5,000NETINCOMEb 83. Calculatenetincomebasedonthefollowinginformation.Salesare$250;Costofgoodssoldis$160;Depreciationexpenseis$35;Interestpaidis$20;andthetaxrateis34%.a. $11.90b. $23.10c. $35.00d. $36.30e. $46.20ESSAYSLIQUIDWhatisaliquidassetandwhyisitnecessaryforafirmtomaintainareasonablelevelofliquidassets?Liquidassetsarethosethatcanbesoldquicklywithlittleornolossinvalue.Afirmthathas sufficientliquiditywillbelesslikelytoexperiencefinancialdistress.OPERATINGCASHFLOWWhyisinterestexpenseexcludedfromtheoperatingcashflowcalculation?Operatingcashflowisdesignedtorepresentthecashflowafirmgeneratesfromitsday-to-dayoperatingactivities.Interestexpensearisesoutofafinancingchoiceandthusshouldbeconsideredasacashflowtocreditors.CASHFLOWANDACCOUNTINGSTATEMENTSExplainwhytheincomestatementisnotagoodrepresentationofcashflow.Mostincomestatementscontainsomenoncashitems,sothesemustbeaccountedforwhencalculatingcashflows.Moreimportantly,however,sinceGAAPisusedtocreateincomestatements,revenuesandexpensesarebookedwhentheyaccrue,notwhentheircorrespondingcashflowsoccur.BOOKVALUEANDMARKETVALUEDiscussthedifferencebetweenbookvaluesandmarketvaluesonthebalancesheetandexplainwhichismoreimportanttothefinancialmanagerandwhy.Theaccountsonthebalancesheetaregenerallycarriedathistoricalcost,notmarketvalues.Althoughthebookvalueofcurrentassetsandcurrentliabilitiesmaycloselyapproximatemarketvalues,thesamecannotbesaidfortherestofthebalancesheetaccounts.Ultimately,thefinancialmanagershouldfocusonthefirm’sstockprice,whichisamarketvaluemeasure.Hence,marketvaluesaremoremeaningfulthanbookvalues.ADDITIONTORETAINEDEARNINGSNotethatinallofourcashflowcomputationstodeterminecashflowofthefirm,weneverincludetheadditiontoretainedearnings.Whynot?Isthisanoversight?Theadditiontoretainedearningsisnotacashflow.Itissimplyanaccountingentrythatreconcilesthebalancesheet.Anyadditionstoretainedearningswillshowupascashflowchangesinotherbalancesheetaccounts.DEPRECIATIONANDCASHFLOWNotethatweaddeddepreciationbacktooperatingcashflowandtoadditionstofixedassets.Whyadditbacktwice?Isn’tthisdouble-counting?Inbothcases,depreciationisaddedbackbecauseitwaspreviouslysubtractedwhenobtainingendingbalancesofnetincomeandfixedassets.Also,sincedepreciationisanoncashexpense,weneedtoadditbackinbothinstances,sothereisnodoublecounting.TAXLIABILITIESANDCASHFLOWSometimeswhenbusinessesarecriticallydelinquentontheirtaxliabilities,thetaxauthoritycomesinandliterallyseizesthebusinessbychasingalloftheemployeesoutofthebuildingandchangingthelocks.Whatdoesthistellyouabouttheimportanceoftaxesrelativetoourdiscussionofcashflow?Whymightabusinessownerwanttoavoidsuchanoccurrence?Taxesmustbepaidincash,andinthiscase,theyareoneofthemostimportantcomponentsofcashflow.Thereputationofabusinesscanundergoirreparableharmifwordgetsoutthatthetaxauthoritieshaveconfiscatedthebusiness,evenifonlyforacoupleofhoursuntilthebusinessownercancomeupwiththemoneytoclearupthetaxproblem.Thebottomlineisiftheownercan’tcomeupwiththecash,thetaxauthorityhaseffectivelyputthemoutofbusiness.CASHFLOWOFTHEFIRM94.Interpret,inwords,whatcashflowofthefirmrepresentsbydiscussingoperatingcashflow,changesinnetworkingcapital,andadditionstofixedassets.Operatingcashflowisthecashflowafirmgeneratesfromitsday-to-dayoperations.Inotherwords,itisthecashinflowgeneratedasaresultofputtingthefirm’sassetstowork.Changesinnetworkingcapitalandassetsrepresentinvestmentsafirmmakesintheseassets.Thatis,afirmtypicallytakessomeofthecashflowitgeneratesfromusingassetsandreinvestsitinnewassets.Cashflowofthefirm,then,isthecashflowafirmgeneratesbyemployingitsassets,netofanyacquisitions.实用文档实用文档实用文档SOLUTIONSTOTESTBANKPROBLEMSChap