Answer Options:
a. True
b. False
Answer:
a. True
Question: Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.
Answer Options:
a. True
b. False
Answer:
a. True
Question: Two metrics that are used to measure a company’s financial performance are net income and cash flow. Accountants emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on cash flows as they do on net income.
Answer Options:
a. True
b. False
Answer:
a. True
Question: The statement of cash flows has four main sections, one each for operating, investing, and financing activities, and one that shows a summary of the cash and cash equivalents at the end of the year.
Answer Options:
a. True
b. False
Answer:
a. True
Question: Two metrics that are used to measure a company’s financial performance are net income and cash flow. Accountants emphasize net income as calculated in accordance with generally accepted accounting principles. Finance people generally put at least as much weight on cash flows as they do on net income.
Answer Options:
a. True
b. False
Answer:
a. True
Question: The fact that 70% of the interest income received by corporations is excluded from its taxable income encourages firms to finance with more debt than they would in the absence of this tax law provision.
Answer Options:
a. True
b. False
Answer:
b. False
Question: To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue in the net income calculation.
Answer Options:
a. True
b. False
Answer:
a. True
Question: Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the amounts at which the assets are carried on the books.
Answer Options:
a. True
b. False
Answer:
a. True
Question: The alternative minimum tax (AMT) was created by Congress to make it more difficult for wealthy individuals to avoid paying taxes through the use of various deductions.
Answer Options:
a. True
b. False
Answer:
a. True
Question: On the balance sheet, total assets must always equal the sum of total liabilities and equity.
Answer Options:
a. True
b. False
Answer:
a. True
Question: If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.
Answer Options:
a. True
b. False
Answer:
b. False
Question: The income statement shows the difference between a firm’s income and its costs—i.e., its profits—during a specified period of time. However, not all reported income comes in the form of cash, and reported costs likewise may not be consistent with cash outlays. Therefore, there may be a substantial difference between a firm’s reported profits and its actual cash flow for the same period.
Answer Options:
a. True
b. False
Answer:
a. True
Question: The next-to-last line on the income statement shows the firm’s earnings, while the last line shows the dividends the company paid. Therefore, the dividends are frequently called “the bottom line.”
Answer Options:
a. True
b. False
Answer:
b. False
Question: Because the U.S. tax system is a progressive tax system, a taxpayer’s marginal and average tax rates are the same.
Answer Options:
a. True
b. False
Answer:
b. False
Question: The first major section of a typical statement of cash flows is “Operating Activities,” and the first entry in this section is “Net Income.” Then, also in the first section, we show some items that represent increases or decreases to cash, and the last entry is called “Net Cash Provided by Operating Activities.” This number can be either positive or negative, but if it is negative, the firm is almost certain to soon go bankrupt.
Answer Options:
a. True
b. False
Answer:
b. False