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
Question 1
Which of the following statements is CORRECT?
a. <
