Which of the following statements about net working capital (NWC) is correct?
A. NWC is positive for all firms.
B. As NWC decreases, potential liquidity increases.
C. NWC excludes inventory, which is deemed illiquid.
D. Decreases in NWC can increase the firm's risk.
42.The existence of goodwill on a corporate balance sheet indicates that the corporation has:
A. been profitable in the past.
B. depreciated its tangible assets.
C. intangible assets from past acquisitions.
D. retained earnings resulting from past income.
43.A balance sheet may be considered backward-looking from the perspective that:
A. it works backward, starting with net income.
B. it records historic, not current values.
C. it cannot forecast the future.
D. it records costs over many previous periods.
44.According to GAAP, assets and liabilities are typically recorded on the balance sheet at:
A. historical cost plus depreciation.
B. market value.
C. salvage value.
D. historical cost less depreciation.
45.Which of the following is correct for a fully depreciated asset?
A. Market value is zero.
B. Market value is greater than book value.
C. Book value is greater than market value.
D. The relationship between market and book values is indeterminable.
46.Depreciation expense is used to:
A. allocate costs to all departments of the firm.
B. determine when an asset is fully paid off.
C. allocate historical cost over the life of an asset.
D. equate the historical cost and market values of an asset.
47.When subtracting an asset's accumulated depreciation from its historic cost, the resulting value is termed the:
A. book value of the asset.
B. market value of the asset.
C. depreciation expense.
D. current asset value.
48.ABC Corp.'s balance sheet shows its long-term debt to be $20 million. The debt was issued with a 10% interest rate, and the current interest rate is 7%. Based on this information alone, the market value of this debt is most likely:
A. less than $20 million.
B. more than $20 million.
C. equal to $20 million.
D. unknown without knowing the maturity of the debt.
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