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Metro Bus Company had $400,000 of revenue and $401,000 of expense (including depreciation) for the current...

Metro Bus Company had $400,000 of revenue and $401,000 of expense (including depreciation) for the current year resulting in a $1,000 net loss. All revenues were received in cash. All expenses were paid in cash, except for depreciation of $181,000. At the end of the year, the Balance Sheet shows $225,000 of Cash and $1,775,000 of other assets. The Company has no debt and all of the busses are modern - there is no plan to purchase more busses. Although there is sufficient Retained Earnings and they historically have paid dividends of $25,000, Management has decided against paying a dividend to stockholders in the current year. Instead, they issue a statement to their stockholders, explaining that "with a $1,000 net loss, Management feels there is insufficient cash for the dividend."

What is the Company's cash flow? What is the difference between cash flow and net income? Evaluate the accuracy of Management's statement: "with a $1,000 net loss, Management feels there is insufficient cash for the dividend." Evaluate the plan to skip the dividend. How would your response change if the stockholders were (a) common stockholders, (b) non-cumulative preferred, or (c) cumulative preferred?

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ekkarill92 answered 2 years ago
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