Corporate Finance European Edition, Hillier , Test bank - exam questions

1. 1. 1 Test Bank for Fundamentals of Corporate Finance Canadian 9th Edition by Ross IBSN 1 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 1) Statement of financial position is best described as a financial statement summarizing a firm's performance over a period of time. Formerly called the income statement. Answer: True False 2) If an asset has a carrying value of $1,000 and its recoverable amount is $750, then a $250 impairment loss has been incurred. Answer: True False 3) If an asset has a carrying value of $2,000 and its recoverable amount is $2,500, then $500 impairment loss has been incurred. Answer: True False 4) Impairment loss is the amount by which the carrying value of an asset or cash-generating unit exceeds its recoverable amount. Answer: True False 5) According to generally accepted accounting principles (GAAP), assets are generally shown on financial statements at the higher of current market value or historical cost. Answer: True False 6) A fundamental difference between Canadian GAAP and IFRS is that fair value accounting plays a more important role under IFRS. Answer: True False 7) The financial statement summarizing the value of a firm's equity on a particular date is the statement of comprehensive income. Answer: True False 8) Patents on new anti-cholesterol drug are considered intangible fixed assets. Answer: True False 2. 2. 2 9) The difference between a firm's current assets and its current liabilities is called net working capital. Answer: True False 10) Statement of comprehensive income is also referred to as the balance sheet, is a snapshot of the firm. It is a convenient means of organizing and summarizing what a firm owns (its assets), what a firm owes (its liabilities), and the difference between the two (the firm's equity) at a given time. Answer: True False 11) Net income divided by the total number of outstanding shares is referred to as the profit margin. Answer: True False 12) Non-cash items refer to expenses charged against revenues that do not directly affect cash flow. Answer: True False 3. 3. 3 13) If a firm's cash flow to stockholders is negative, then total dividends must have exceeded the value of net new equity sold by the firm during the year. Answer: True False 14) A firm's marginal tax rate may differ from its average tax rate. However, it is the average tax rate that is relevant for financial decision-making purposes. Answer: True False 15) The financial statement summarizing a firm's performance over a period of time is the statement of cash flows Answer: True False 16) Conceptually, capital cost allowance (CCA) is equivalent to depreciation. Answer: True False MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 17) JanexCorporation had OCF of $250, net capital spending of $500 and change in net working capital of $150. Given this information, determine its cash flow from assets. A) $(400) B) $(800) C) $150 D) $800 E) $400 Answer: A 18) Shareholders' equity in a firm is $500. The firm owes a total of $400 of which 75 percent is payabl