Fundamentals of Corporate Finance, 12e (Ross)
Chapter 2  Financial Statements, Taxes, and Cash Flow
1) Which one of the following is classified as a tangible fixed asset?
A) Accounts receivable
B) Production equipment
C) Cash
D) Patent
E) Inventory
2) Which one of the following is a current asset?
A) Accounts payable
B) Trademark
C) Accounts receivable
D) Notes payable
E) Equipment
3) Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?
A) Real estate investment
B) Good reputation of the company
C) Equipment owned by the firm
D) Money due from a customer
E) An item held by the firm for future sale
4) Which one of the following is a current liability?
A) Note payable to a supplier in 13 months
B) Amount due from a customer in two weeks
C) Account payable to a supplier that is due next week
D) Loan payable to the bank in 18 months
E) Amount due from a customer that is past due
5) Which one of the following will decrease the value of a firm's net working capital?
A) Using cash to pay a supplier
B) Depreciating an asset
C) Collecting an accounts receivable
D) Purchasing inventory on credit
E) Selling inventory at a loss
6) Which one of the following statements concerning net working capital is correct?
A) Net working capital increases when inventory is purchased with cash.
B) Net working capital excludes inventory.
C) Total assets must increase if net working capital increases.
D) Net working capital may be a negative value.
E) Net working capital is the amount of cash a firm currently has available for spending.
7) Which one of the following statements concerning net working capital is correct?
A) A firm's ability to meet its current obligations increases as the firm's net working capital decreases.
B) An increase in net working capital must also increase current assets.
C) Net working capital increases when inventory is sold for cash at a profit.
D) Firms with equal amounts of net working capital are also equally liquid.
E) Net working capital is a part of the operating cash flow.
8) Which one of the following accounts is the most liquid?
A) Inventory
B) Building
C) Accounts Receivable
D) Equipment
E) Land
9) Which one of the following represents the most liquid asset?
A) $100 account receivable that is discounted and collected for $96 today
B) $100 of inventory that is sold today on credit for $103
C) $100 of inventory that is discounted and sold for $97 cash today
D) $100 of inventory that is sold today for $100 cash
E) $100 of accounts receivable that will be collected in full next week
10) Which one of the following statements related to liquidity is correct?
A) Liquid assets tend to earn a high rate of return.
B) Liquid assets are valuable to a firm.
C) Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.
D) Inventory is more liquid than accounts receivable because inventory is tangible.
E) Any asset that can be sold is considered liquid.
11) Shareholders' equity:
A) is referred to as a firm's financial leverage.
B) is equal to total assets plus total liabilities.deductible
C) decreases whenever new shares of stock are issued.
D) includes patents, preferred stock, and common stock.
E) represents the residual value of a firm.
12) As the degree of financial leverage increases, the:
A) probability a firm will encounter financial distress increases.
B) amount of a firm's total debt decreases.
C) less debt a firm has per dollar of total assets.
D) number of outstanding shares of stock increases.
E) accounts payable balance decreases.
13) The book value of a firm is:
A) equivalent to the firm's market value provided that the firm has some fixed assets.
B) based on historical cost.
C) generally greater than the market value when fixed assets are included.
D) more of a financial than an accounting valuation.
E) adjusted to the market value whenever the market value exceeds the stated book value.
14) The value of which one of the following is included in the market value of a firm but is excluded from the firm's book value?
A) Office equipment
B) Copyright
C) Distribution warehouse
D) Employee's experience
E) Land acquired over 25 years ago
15) You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?

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