BUS 305 EXAM 1 QUESTIONS WITH VERIFIED
ANSWERS
Assume both current and deferred taxes are positive values. Given this, deferred taxes
will: - Answers - reduce net income but not affect the operating cash flows.
Which one of the following accounts is generally the most liquid? - Answers - Accounts
receivable
When making financial decisions related to assets, you should: - Answers - always
consider market values.
Depreciation: - Answers - is a non-cash expense that reduces the pretax income.
Al's has a positive net income and a tax rate of 34 percent. Given this, an increase in
which one of the following will cause the operating cash flow to increase? - Answers -
Depreciation
The cash flow to creditors increases when: - Answers - interest is paid on outstanding
debt.
Cash flow to stockholders must be positive when: - Answers - the dividends paid
exceed the net new equity raised.
Free cash flow is: - Answers - cash that is available to distribute to creditors and equity
holders.
The cash flow to stockholders must be positive when: - Answers - the cash flow from
assets is positive and also exceeds the cash flow to creditors.
Depreciation for a profitable firm: - Answers - decreases net income by less than $1 for
every $1 of depreciation expense.
If the net present value of a project is positive (non-zero), then the project's: - Answers -
internal rate of return will exceed its required rate of return.
Projects A and B require an initial investment of $48,000 and $98,000, respectively. The
projects are mutually exclusive and both have positive net present values. Which of
these methods is probably the best method to use to determine which project to accept?
- Answers - Incremental IRR
All else equal, the payback period for a project will decrease whenever the: - Answers -
cash inflows are moved earlier in time.
ANSWERS
Assume both current and deferred taxes are positive values. Given this, deferred taxes
will: - Answers - reduce net income but not affect the operating cash flows.
Which one of the following accounts is generally the most liquid? - Answers - Accounts
receivable
When making financial decisions related to assets, you should: - Answers - always
consider market values.
Depreciation: - Answers - is a non-cash expense that reduces the pretax income.
Al's has a positive net income and a tax rate of 34 percent. Given this, an increase in
which one of the following will cause the operating cash flow to increase? - Answers -
Depreciation
The cash flow to creditors increases when: - Answers - interest is paid on outstanding
debt.
Cash flow to stockholders must be positive when: - Answers - the dividends paid
exceed the net new equity raised.
Free cash flow is: - Answers - cash that is available to distribute to creditors and equity
holders.
The cash flow to stockholders must be positive when: - Answers - the cash flow from
assets is positive and also exceeds the cash flow to creditors.
Depreciation for a profitable firm: - Answers - decreases net income by less than $1 for
every $1 of depreciation expense.
If the net present value of a project is positive (non-zero), then the project's: - Answers -
internal rate of return will exceed its required rate of return.
Projects A and B require an initial investment of $48,000 and $98,000, respectively. The
projects are mutually exclusive and both have positive net present values. Which of
these methods is probably the best method to use to determine which project to accept?
- Answers - Incremental IRR
All else equal, the payback period for a project will decrease whenever the: - Answers -
cash inflows are moved earlier in time.
