WGU C214 Financial Mgmt Pass the OA

The sum of CFO + CFI + CFF is equal to - ANSWER-the change in cash during theperiodDepreciation expense is a significant source of difference between net income and CFObecause - ANSWER-depreciation is a non-cash expense on the Income Statementassociated with the acquisition of long-term assetsSubordinated bonds - ANSWER-are bonds not backed by collateralFor visualization purposes, CFI accounts are generally non-current assets on thebottom of the asset side of the Balance Sheet - ANSWER-TRUENOTE: CFI is investing in PP&E and is considered long-term assets shown as assetson the Balance SheetIncreases in operating assets and decreases in operating liabilities will - ANSWER-decrease CFONOTE: an increase in PP&E (assets) consumes operating cash; decreases inequipment (liabilities) also consumes operating cash (CFO)Unsecured loan - ANSWER-has no collateralNOTE: a credit card is an exampleAssuming no asset disposals, CFI is - ANSWER-the change in Gross PP&E -or- CFI isthe change in NET PP&E plus depreciation expenseAssuming no asset disposals, depreciation expense is equal to - ANSWER-the changein ACCUMULATED depreciationAssets are financed by - ANSWER-other people's money or equityDividends are considered - ANSWER-CFF (financing section)A firm with positive CFO should be considered healthy - ANSWER-FALSENOTE: a positive CFO can still be detrimental to the firm depending on other factorsThe increase in yield (rate) causes - ANSWER-the bond prices to decrease (and vice-versa)NOTE: when interest rates increase, bond prices decreaseA working capital increase caused by an increase in inventory will be - ANSWER-a cashoutflowNOTE: capital increase is inventory purchased so money goes outA firm can sustain negative CFO indefinitely by borrowing, selling equity, and/or byselling assets - ANSWER-FALSE NOTE: a firm can NOT sustain negative CFO forever Which should NOT be included in the calculation of CFF - ANSWER-a change inretained earningsDividing CFO among the owners of a firm is a sustainable policy - ANSWER-FALSENOTE: CFO doesn't allow for required reinvestment Dividing CFO among owners of a firm is NOT a sustainable policy - ANSWER-TRUE NOTE: CFO doesn't allow for required reinvestmentA firm reports the following cash flow data CFO 1 million, CFI 750K, and CFF -100K. Isthe firm sustainable - ANSWER-Yes, the firm is sustainable. CFF may be due to payingdown debt, buying back stock, or paying dividendsWhen calculating CFO, an increase in an operating liability such as A/P or accruedwages represents - ANSWER-an inflow to the firmNOTE: if the firm owes to suppliers, more inventory is purchased and on hand (inflow)NOTE: Operating liability accounts are:Increases: an inflow of cashDecreases: an outflow of cashCFO can be dramatically impacted by managerial discretion in the financial reportingprocess - ANSWER-TRUENOTE: management has discretion which is why financial statements can be misleadingManagement of cash flow from operations - ANSWER-is dramatically impacted bymanagerial decisionsThe impact of accrual accounting is seen as - ANSWER-MOST useful in relation to netincomeA change in notes payable (bank loans) will - ANSWER-impact CFFNOTE: A/P and A/R impacts CFO; while notes payable (bank loans) are consideredlong-term and affect CFFWhich will decrease CFO - ANSWER-an increase in A/R & a decrease in A/PNOTE:-when A/R is increased, product has been sold-when A/P is decreased, suppliers have been paidThese actions decrease CFOWhich represents assets in CFO - ANSWER-A/R and inventoryDepreciation expense is added back in FCF because - ANSWER-depreciation expenseis a non-cash expense