Solved by verified expert :Question 3-3
If a typical firm
reports $20 million of retained earnings on its Balance sheet, could its
directors declare a $20 million cash dividend without having any qualms about
what they were doing? Explain your answer.
What are free cash flows? If you were an investor, why might
you be more interested in free cash flow that the net income?
What does double taxation of corporate income mean? Could income
ever be subject to triple taxation? Explain your answer.
Income Statement –
Pearson Brothers recently reported an EBITDA of $7.5 million and net income of
$1.8 million. It had $2.0 million of interest expense, and its corporate tax
rate was 40%. What was its charge of depreciation and amortization?
Balance Sheet –Which
of the following actions are most likely to directly increase cash as shown on
a firm’s balance sheet? Explain and state the assumptions that underline your
It issues $2 million of new common stock.
It buys new plant and equipment at a cost of
It reports a large loss for the year.
It increases the dividends paid on its common
Statement of Cash
Flows –W. C. Cycling had $55,000 in cash at year-end 2010 and $25,000 in
cash at year end 2011. The firm invested in property, plant, and equipment totalling
$250,000. Cash flow from financing activities totalled +$170,000.
What was the cash flow from operating activities?
If accruals increased by $25,000, receivables
and inventories increased by $100,000 and depreciation and amortization totalled
$10,000, what was the firm’s net income?