Financial Management

Accounting profits and cash flows are generally:

• unequal because of how income is recognized according to GAAP.

• unequal because cash inflows must occur before revenue recognition.

Assume a profitable firm has neither issued nor repurchased any shares of its common stock, nor has it ever paid dividends. If the book value of the firm’s stockholders’ equity has increased, it follows that the:

• firm’s earnings per share has increased.

• market value of the firm’s buildings has increased.

• market value of the firm’s long-term debt has decreased.

A firm starts its year with positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that:

• the ending net working capital must be negative.

• accounts payable and inventory increased during the year.

• The ending net working capital can be positive, negative, or equal to zero.

Tejado Supply has total equity of $1,830, fixed assets of $2,170, long-term debt of $740, and short-term debt of $430. What is the amount of Tejado’s current assets?

• $660

• $830

• $400

Goodwin Transport paid $85 in dividends and $110 in interest expense during a given year. During that same year, the firm issued $40 in new equity shares, issued new debt of $65, and repaid $23 of old debt. What is the cash flow to creditors for that year?

• $68

• $152

cannot be controlled and that must be paid to operate a business. They include depreciation on buildings and equipment and salaries paid to managers

• COMMITTED

• DISCRETIONARY

• Controllable

Costs that change

disproportionately

with changes in

output levels.

• Fixed Costs

• Variable Costs

• Semi Variable Costs

A tool that helps managers

to determine the

best way of structuring

operating costs

(fixed versus variable).

• Break Even Point

• Breakeven wedge

• Cash break even