Which of the below statements is FALSE? A) Whenever a new product competes against a company’s already existing products and reduces the sales of other products, opportunity costs occur. B) Erosion can provide cost savings. C) A synergy gain occurs when a new product can be introduced that complements another current product so that sales […]
Whenever a new product competes against a company’s already existing products and reduces the sales of the other products, net working capital increases occur. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Whenever a new product competes against a company’s already existing products and reduces the sales of these […]
If the company had a large depreciation expense during the period, the income statement could show a loss for the period, even though the cash account may have grown during the same period. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Effective capital structure decisions can lower the cost of capital, resulting in higher NPVs and more acceptable projects, thereby increasing the value of a firm. Indicate whether the statement is true or false ANSWER TRUE
Profits can be defined as an accounting measure of performance during a specific period of time. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Appropriate collateral for a loan secured under a floating inventory lien is ________. A) cars B) granite slabs C) air conditioners D) paper clips ANSWER D
On a corporate income statement, interest is paid after taxes are paid. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: On a corporate income statement, interest is paid BEFORE taxes are paid.
Under the floating inventory lien, the borrower is free to sell the merchandise and is expected to remit the amount lent against each item, along with accrued interest, to the lender immediately after the sale. The lender then releases the lien on the appropriate item. Indicate whether the statement is true or false […]
Explain how to compute an operating cash flow (OCF) from a modified income statement. What will be an ideal response? ANSWER Answer: We first compute EBIT, which is Revenues – Costs of Goods Sold – General Selling and Administrative Expenses – Depreciation. We then subtract Taxes to get Modified Net Income. Next, add […]
Explain the distinction between profits and cash flow. What will be an ideal response? ANSWER Answer: Profits are an accounting measure of performance during a specific period of time. Cash flow is the actual inflow or outflow of money. Although you cannot spend “profit,” you can spend cash. This is because profit given […]
