Ch.2 FIN 351 - Quick Quiz What is the difference between...

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Unformatted text preview: Quick Quiz What is the difference between book value and market value? (Slide 2.8) Which should we use for decision making purposes? What is the difference between accounting income and cash flow? Which do we need to use when making decisions? (Slide 2.12) 2-1 Quick Quiz What is the difference between average and marginal tax rates? Which should we use when making financial decisions? (Slide 2.15) How do we determine a firm's cash flows? What are the equations and where do we find the information? (Slide 2.19) 2-2 Market vs. Book Value Book value = the balance sheet value of the assets, liabilities, and equity. Market value = true value; the price at which the assets, liabilities, or equity can actually be bought or sold. Market value and book value are often very different. Why? Which is more important to the decisionmaking process? Return to Quick Quiz 2-3 Financial Statements GAAP Matching Principle: Recognize revenue when it is fully earned Match expenses required to generate revenue to the period of recognition Noncash Items Expenses charged against revenue that do not affect cash flow Depreciation = most important Return to Quick Quiz 2-4 Taxes Marginal vs. Average tax rates Marginal % tax paid on the next dollar earned Average total tax bill / taxable income If considering a project that will increase taxable income by $1 million, which tax rate should you use in your analysis? Return to Quick Quiz 2-5 Cash Flow From Assets Cash Flow From Assets (CFFA) = Operating Cash Flow (OCF) Net Capital Spending (NCS) Changes in NWC (NWC) Cash Flow From Assets (CFFA) = Cash Flow to Creditors (CF/CR) + Cash Flow to Stockholders (CF/SH) Return to Quick Quiz 2-6 ...
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Ch.2 FIN 351 - Quick Quiz What is the difference between...

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