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Intermediate Finance > Chapter 6 > Flashcards

Chapter 6 Flashcards

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1
Q

How do calculate Net Cash Flows

A

=Net Income - Non-cash Rev + Non Cash Exp

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2
Q

What is the statement of cash flows

A

summarizes the changes in a company’s cash position

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3
Q

What are operating activities

A

The amount of cash generated by the firm’s operating activities

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4
Q

What are investing activities

A

a transaction involving fixed assets or short-term financial investments

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5
Q

What are financing activities increase cash

A
  • issuing short and long term debt and stock
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6
Q

What financing activities decrease cash

A

dividend payments, stock repurchases

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7
Q

What does the statement of cash flows say

A

is the firm generating enough cash to purchase the additional assets required for growth and is there extra cash they can use to pay off debt

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8
Q

What is FCF

A

FCF is the amount of cash available from operations for distribution to all investors after making necessary to support operations

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9
Q

what does a companies value depend on

A

amount of FCF it can generate

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10
Q

What is NOPAT

A

the amount of profit a company would generate if it had no debt and held no financial assets

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11
Q

What are operating current assets

A

the CA needed to support operations

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12
Q

What do current operating assets include and exclude?

A

include: cash, inventory, receivables

exclude: short-term investments

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13
Q

What do current operating liabilities include or exclude

A

Include: AP and Accruals
Exclude: Notes payable b/bc this is a source of financing

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14
Q

What is Net Operating Working Capital (NOWC)

A

working capital acquired with investor-supplier funds

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15
Q

Is negative FCF always bad

A

no

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16
Q

Besides working capital what can also be used to support operation

A

long terms assets

17
Q

What are the uses of FCF

A
  1. Pay interest on debt (IS)
  2. Pay back principal on debt (BS)
  3. Pay dividends
  4. Buy back stock
  5. Buy short-term investments
18
Q

What does it mean if a company has negative FCF

A

That the company is making large investments in operating assets

NOPAT is bad but negative FCF is not

19
Q

What is return on invested capital

A

The way to show whether growth is profitable shows how much growth is generated by each dollar of operating capital

20
Q

if ROIC is greater than rate of return that investors require then what?

A

the firm is adding value

21
Q

What is MVA

A

Total market value of a company minus the amount of investor-supplied capital

22
Q

what is EVA

A

Economic value added… the income that remains after the cost of all capital

23
Q

What does MVA measure

A

the effects of managerial actions since the very inception of a company

24
Q

What does EVA measure

A

managerial action in the given year

25
Q

Which is a business best estimate of it’s true economic profit for the year?

A

EVA

26
Q

If a company has a negative EVA history then the MVA will probably be…

A

negative

27
Q

What can EVA be applied to in business

A

individual or other units of a large corporation

28
Q

What is the marginal tax rate?

A

tax applied to the last unit of income

29
Q

what is the average tax rate

A

taxes paid divided by taxable income

30
Q

What does the tax system favor

A

debt financing over equity financing

31
Q

What is taxed for corporate taxes

A

Interest income and 50% dividend income

32
Q

How are dividends taxed

A

50% are excluded from taxable income and the remaining 50% are taxed at the ordinary tax rate

33
Q

What do individuals pay taxes on?

A

wages and salaries, investment income, profits of proprietorships and partnerships

34
Q

What tax rates do individuals face?

A

progressive tax rates

35
Q

What is the typical rate on long term capital gains?

A

15%

36
Q

When is capital gain taxed?

A

when you sell it

37
Q

how are dividends taxed?

A

same rate as capital gains

38
Q

What is not subject to federal taxation?

A

interest on municipal bonds

39
Q
A

Intermediate Finance (10 decks)

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