Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 2, Problem 7CRCT
Summary Introduction
To discuss: Whether having a negative operating cash flow is a good or a bad sign.
Situation: A firm has negative operating cash flows for several years.
Introduction:
Cash flow refers to the difference between the money that comes in and goes out of the firm. Operating cash flow is the cash from operating activities or primary activities of the firm. A firm will have a negative operating cash flow when its operating costs are greater than the operating incomes.
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QUESTION 7
Which of the following companies will probably have the highest decline in profit if the economy goes into recession?
O A company with a DOL = 5.7
A company with a DOL = 2.5
A compnay with a DOL = 5.8
A company with a DOL = 5.5
Which of the following is a diversifiable risk?
Multiple Choice
The risk that the economy will go into a recession
The price of oil rising
The risk that a company's CEO is killed in a plane crash
Inflation
The corporate tax rate rising by 5%
A mature and stable company will likely have positive investing cash flows.
O True
O False
All things that affect income this year either increase or decrease operating cash flows
this year.
O True
O False
A thriving company with positive income could still have negative total cash flows.
True
O False
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Chapter 2 Solutions
Fundamentals of Corporate Finance
Ch. 2.1 - Prob. 2.1ACQCh. 2.1 - What is liquidity? Why is it important?Ch. 2.1 - What do we mean by financial leverage?Ch. 2.1 - Explain the difference between accounting value...Ch. 2.2 - What is the income statement equation?Ch. 2.2 - Prob. 2.2BCQCh. 2.2 - Why is accounting income not the same as cash...Ch. 2.3 - What is the difference between a marginal and an...Ch. 2.3 - Do the wealthiest corporations receive a tax break...Ch. 2.4 - Prob. 2.4ACQ
Ch. 2.4 - Prob. 2.4BCQCh. 2.4 - Why is interest paid not a component of operating...Ch. 2 - What types of accounts are the most liquid?Ch. 2 - What is an example of a noncash expense?Ch. 2 - The marginal tax rate is the tax rate which...Ch. 2 - Prob. 2.4CTFCh. 2 - Prob. 1CRCTCh. 2 - Accounting and Cash flows [LO2] Why might the...Ch. 2 - Prob. 3CRCTCh. 2 - Operating Cash Flow [LO2] In comparing accounting...Ch. 2 - Prob. 5CRCTCh. 2 - Cash Flow from Assets [LO4] Suppose a companys...Ch. 2 - Prob. 7CRCTCh. 2 - Net Working Capital and Capital Spending [LO4]...Ch. 2 - Prob. 9CRCTCh. 2 - Prob. 10CRCTCh. 2 - Prob. 11CRCTCh. 2 - Earnings Management [LO2] Companies often try to...Ch. 2 - Building a Balance Sheet [LO1] KCCO, Inc., has...Ch. 2 - Building an Income Statement [LO1] Billys...Ch. 2 - Dividends and Retained Earnings [LO1] Suppose the...Ch. 2 - Prob. 4QPCh. 2 - Calculating Taxes [LO3] The Dyrdek Co. had 267,000...Ch. 2 - Prob. 6QPCh. 2 - Calculating OCF [LO4] Ridiculousness, Inc., has...Ch. 2 - Calculating Net Capital Spending [LO4] Bowyer...Ch. 2 - Calculating Additions to NWC [LO4] The 2014...Ch. 2 - Cash Flow to Creditors [LO4] The 2014 balance...Ch. 2 - Cash Flow to Stockholders [LO4] The 2014 balance...Ch. 2 - Prob. 12QPCh. 2 - Market Values and Book Values [LO1] Klingon...Ch. 2 - Prob. 14QPCh. 2 - Using Income Statements [LO1] Given the following...Ch. 2 - Preparing a Balance Sheet [LO1] Prepare a 2015...Ch. 2 - Prob. 17QPCh. 2 - Prob. 18QPCh. 2 - Net Income and OCF [LO2] During 2014, Raines...Ch. 2 - Prob. 20QPCh. 2 - Prob. 21QPCh. 2 - Calculating Cash Flows [LO4] Consider the...Ch. 2 - Net Fixed Assets and Depreciation [LO4] On the...Ch. 2 - Prob. 24QPCh. 2 - Use the following information for Taco Swell,...Ch. 2 - Use the following information for Taco Swell,...Ch. 2 - Prob. 1MCh. 2 - Prob. 2M
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Similar questions
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- 1. Suppose that a financial institution has a negative $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a rise in interest rates? 2. Suppose a financial institution has a positive $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a drop in interest rates?arrow_forwardSelect all of the following that will have a negative effect on the firm's cash flows? (Assume other variables remain constant, no change in revenues, etc.) O Increase in Inventory Decrease in Accounts Payable Increase in Accounts Receivable Increase in Working Capital Decrease in Accounts Receivable Decrease in Inventory Increase in Accounts Payablearrow_forwardWhich of the following decreases the cash holding A.The rising commodity prices increases the value of law material inventoriesby 10% B.A manufacturer decreases production in anticipation of a decrease in demand C.THe frim repurchases its own stocks D.THe corporation has decided to give their customer less time in paying their purchasesarrow_forward
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