ECN 104 Study Guide - Opportunity Cost, Dividend Tax, Common Stock
12 Mar 2014
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Lo1 the difference between accounting value (or book value) and market value. Lo2 the difference between accounting income and cash flow. Lo3 the difference between average and marginal tax rates. Lo4 how to determine a firm"s cash flow from its financial statements. Lo5 the basics of capital cost allowance (cca) and undepreciated capital cost (ucc). Answers to concepts review and critical thinking questions (lo1) liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. It"s desirable for firms to have high liquidity so that they have a large factor of safety in meeting short-term creditor demands. However, since liquidity also has an opportunity cost associated with it namely that higher returns can generally be found by investing the cash into productive assets low liquidity levels are also desirable to the firm. It"s up to the firm"s financial management staff to find a reasonable compromise between these opposing needs.
