Corporate Finance Essay

CHAPTER 2
Financial Statements, Taxes, and Cash Flow

I. DEFINITIONS

BALANCE SHEET
b 1. The financial statement showing a firm’s accounting value on a particular date is the:
      a. income statement.
      b. balance sheet.
      c. statement of cash flows.
      d. tax reconciliation statement.
      e. shareholders’ equity sheet.

CURRENT ASSETS
c 2. 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 balance sheet.
      e. the market value of all items currently owned by the firm.

LONG-TERM DEBT
b 3. The long-term debts of a firm are liabilities:
      a. that come due within the next 12 months.
      b. that do not come due for at least 12 months.
      c. owed to the firm’s suppliers.
      d. owed to the firm’s shareholders.
      e. the firm expects to incur within the next 12 months.

NET WORKING CAPITAL
e 4. Net working capital is defined as:
      a. total liabilities minus shareholders’ equity.
      b. current liabilities minus shareholders’ equity.
      c. fixed assets minus long-term liabilities.
      d. total assets minus total liabilities.
      e. current assets minus current liabilities.

LIQUID ASSETS
d 5. 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
      FINANCIAL LEVERAGE
a 6. Financial leverage refers to the:
      a. amount of debt used in a firm’s capital structure.
      b. ratio of retained earnings to shareholders’ equity.
      c. ratio of paid-in surplus to shareholders’ equity.
      d. ratio of cost-of-goods-sold to total sales....