Question

a1. The purpose of a statement of cash flows is to

a. report a firm’s cash inflows and outflows during a period of time

b. help the analyst assess a firm’s ability to generate cash for dividends and investments

c. help the analyst identify a firm’s needs for external financing

d. help the analyst understand the difference between net income and net cash flow from operating activities

e. all of the above

2. Cash budgeting can lower the cost of borrowing for which of the following reasons?

a. By knowing ahead of time how much financing is required, the financial manager can bargain for funds

b. The quality of cash budgeting can convince lenders to lower their risk perceptions of the firm and, therefore, charge a lower interest rate

c. All of the above

d. None of the above

3. A decrease in cash constitutes a source of funds while an increase in cash is a use of funds in the sources and uses of funds statement.

a. true

b. false

4. Selling inventory to credit customers is considered a source of funds when in fact no “funds” were generated.

a. True

b. False

5. Which of the following are sources of funds?

(a) Sale of land, Dividend payments, Decrease in accrued taxes

(b) Sale of Land, Decrease in raw materials inventory

(c) Depreciation charges, Sale of government bonds

(d) both (b) and (c)

(e) None of the above 6. Which of the following are uses of funds? a. Sale of land, Dividend payments, Decrease in accrued taxes b. Decrease in raw materials inventory, Depreciation charges, Sale of government bonds c. Dividend payments, Decrease in accrued taxes d. Dividend payments e. None of the above 7. Sunk costs must be ignored because they do not affect incremental cash flows. a. TRUE b. FALSE 8. A product expansion project will: a. produce new future cash revenues, involves higher future cash operating costs, and requires an investment b. produce new future cash revenues and involves only a reduction in costs c. does not require an investment d. All of the above e. None of the above 9. When relevant project cash flows are examined, a decrease in tax depreciation is deducted and then added back in to determine the incremental net cash flow for a period. a. True b. False 10.If the required return is the cost of capital where the expectation of investors includes an increment for protection of purchasing power, then the benefits to be generated by a project should include the higher price of the product over time as a result of inflation. Otherwise, a bias would be introduced into the decision-making process. a. True b. False

Answer 1

Q1. Answer is a. report a firms cash inflow and outflows during the period of time.
Q2. Answer is a. By knowing ahead of time how much financing is required, the financial manager can bargain for funds
Q3. Answer is a. True.
The decrease in current assets hence decreases in Working capital which releases the funds, and vice Versa.
Q4. Answer is b. false
Q5. Answer is d. Both B and C
Q6. Answer is c. Dividend payments and a decrease in accrued taxes
Q7. Answer is a. True
Q8. Answer is a. Produce new future cash revenues, involves higher future cash operating cost and required an investment.
Q9. Answer is a. True.
Tax shield on depreciation is added to determine the incremental cash flows.
Q10. Answer is b. False