30 Finance Question - 30608

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Question 1   

Which of the following statements is CORRECT?

a.       The more depreciation a firm reports, the higher its tax bill, other things held constant.

b.      People sometimes talk about the firm’s net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line.”

c.       Depreciation reduces a firm’s cash balance, so an increase in depreciation would normally lead to a reduction in the firm’s net cash flow.

d.      Net cash flow (NCF) is often defined as follows:

Net Cash Flow = Net Income + Depreciation and Amortization Charges.

e.       Depreciation and amortization are not cash charges, so neither of them has an effect on a firm’s reported profits.



Question 2  

Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined.  Which of the following could explain this performance?

a.         The company’s operating income declined.

b.        The company’s expenditures on fixed assets declined.

c.         The company’s cost of goods sold increased.

d.        The company’s depreciation and amortization expenses declined.

e.         The company’s interest expense increased.



Question 3    

Below are the 2008 and 2009 year-end balance sheets for Wolken Enterprises:


         Assets:                                                                                     2009                      2008           

         Cash                                                                              $    200,000              $  170,000  

         Accounts receivable                                                          864,000                  700,000   

         Inventories                                                                       2,000,000              1,400,000  

           Total current assets                                                     $  3,064,000             $2,270,000 

         Net fixed assets                                                                6,000,000              5,600,000  

         Total assets                                                                   $  9,064,000             $7,870,000 


         Liabilities and equity:                                                                                                   

         Accounts payable                                                          $  1,400,000             $1,090,000 

         Notes payable                                                                  1,600,000              1,800,000  

           Total current liabilities                                               $  3,000,000             $2,890,000 

         Long-term debt                                                                 2,400,000              2,400,000  

         Common stock                                                                 3,000,000              2,000,000  

         Retained earnings                                                              664,000                  580,000   

           Total common equity                                                  $  3,664,000             $2,580,000 

         Total liabilities and equity                                            $  9,064,000             $7,870,000 


         Wolken has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year non-callable, long-term debt in 2008.  As of the end of 2009, none of the principal on this debt had been repaid.  Assume that the company’s sales in 2008 and 2009 were the same.  Which of the following statements must be CORRECT?


a.         Wolken increased its short-term bank debt in 2009.

b.        Wolken issued long-term debt in 2009.

c.         Wolken issued new common stock in 2009.

d.        Wolken repurchased some common stock in 2009.

e.         Wolken had negative net income in 2009.                  

All 30 Question And Answers are attached

Solution Description


Question 1   

Which of the following statements is CORRECT?

a.       <