Question Details

Why Regal Industrial Fixtures had a negative net cash flow last year



1.	Which of the following statements is CORRECT?
a.	Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits.
b.	The more depreciation a firm reports, the higher its tax bill, other things held constant.
c.	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."
d.	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.
e.	Net cash flow (NCF) is often defined as follows:
Net Cash Flow = Net Income + Depreciation and Amortization Charges.




	2.	Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes.
a.	Companies' reported net incomes would decline.
b.	Companies' net operating profits after taxes (NOPAT) would decline.
c.	Companies' physical stocks of fixed assets would increase.
d.	Companies' net cash flows would increase.
e.	Companies' cash positions would decline.


	

	3.	Which of the following factors could explain why Regal Industrial Fixtures had a negative net cash flow last year, even though the cash on its balance sheet increased?
a.	The company repurchased 20% of its common stock.
b.	The company sold a new issue of bonds.
c.	The company made a large investment in new plant and equipment.
d.	The company paid a large dividend.
e.	The company had high amortization expenses.


		

	4.	Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?
a.	The company issued new long-term debt.
b.	The company cut its dividend.
c.	The company made a large investment in a profitable new plant.
d.	The company sold a division and received cash in return.
e.	The company issued new common stock.


		

	5.	A security analyst obtained the following information from Prestopino Products' financial statements:

•	Retained earnings at the end of 2011 were $700,000, but retained earnings at the end of 2012 had declined to $320,000.
•	The company does not pay dividends.
•	The company's depreciation expense is its only non-cash expense; it has no amortization charges.
•	The company has no non-cash revenues.
•	The company's net cash flow (NCF) for 2012 was $150,000.

On the basis of this information, which of the following statements is CORRECT?
a.	Prestopino had negative net income in 2012.
b.	Prestopino's depreciation expense in 2012 was less than $150,000.
c.	Prestopino had positive net income in 2012, but its income was less than its 2011 income.
d.	Prestopino's NCF in 2012 must be higher than its NCF in 2011.
e.	Prestopino's cash on the balance sheet at the end of 2012 must be lower than the cash it had on the balance sheet at the end of 2011.
		





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