Why do companies accelerate depreciation on their tax return but often use slower depreciation rates on their financial statements? a. to avoid taxes b. to postpone taxes c. to improve earnings d. to improve long term cashflow
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Why do companies accelerate
depreciation rates on their financial statements?
a. to avoid taxes
b. to postpone taxes
c. to improve earnings
d. to improve long term cashflow
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Solved in 2 steps
- Discuss and explain the difference between profit/loss and cash flow. How could a company have positive cash flow, but show a net loss at year end? What are some examples of industries and/or companies that might generate subtantial cash flow, but could lose money? Conversely, what are some examples of industries and/or companies that might generate very limited cash flow, but could show a profit at year end?What would be a reason a company would want to understate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show an increase in overall profits D. to increase investor confidenceWhat would be a reason a company would want to overstate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show a decrease in overall profits D. none of the above
- How does the annual rate of return differ from other methods? It has more complex calculations. It uses the amounts a company reports on its tax return. It takes into account the time value of money. It does not focus on cash flows.Which one of the following is an advantage of LIFO? a. In periods of rising prices, less income taxes are paid b. In periods of rising prices, more holding gains are reported in net income c. Record keeping and financial statement preparation are easier d. Conservative income statement and balance sheet disclousures result from falling pricesComment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.
- Why is the depreciation tax shield a component of analyzing investment decisions? O A. Depreciation causes a cash outflow that is added to determine net income. O B. Though no cash was paid out, depreciation was included on the tax return, which caused the company to pay taxes on the amount of depreciation. O C. Depreciation lowers cash outflows for income taxes paid. O D. Depreciation creates cash flows that do not appear on the income statement.Which of the following statements is CORRECT? O The more depreciation a firm reports, the higher its tax bill, other things held constant. O People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line." O Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits. O Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges. O Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.Which of the following is NOT a Financial objective? a. Growth in earnings of b. A bigger market share C. Higher returns on invested capital estion d. Stable earnings during periods of recession Select one: О а. а O b. b O C. C
- After tax cash flow = Earnings after tax + __________ A sunk cost is one that has been incurred and it is not relevant to __________ decisions. Total Risk = Systematic Risk + __________ risk Systematic risk reflects exposure to __________ wide events, such as interest rate changes and business cycles, Expected return on risky asset = Risk free interest rate + __________ premium + Risk premium.ability to pay short-term debts (does it have sufficient current assets to pay its current liabilities?) capital structure (are its assets financed more by debt or equity?) operational efficiency (how long does it take them to sell their inventory, collect receivables, or pay payables?)All else the same, which of the following management decisions would help alleviate the problem of a buildup of excess cash? O Increase credit terms to customer; i.e. allow them more time to pay Borrow short term to increase the size of the Interest Tax Shield O Reduce credit terms to customers: i.c. make them pay sooner O Reduce the dividend payout ratio to crcate higher levels of retained earnings In evaluating the accuracy of your forecast, which of the following might be indicative of the need for a revised forecast? O The company's Dividend Payout Ratio is likely too high in the forecast period O The growth rate of Sales is trending toward 4-5% over the forecast period O The ratio of Sales/(Invested Capital) is much higher in the forecast period than in the Historical period from which you derived your forecast O The firm's Forecast D/E ratio is holding steady over the course of the forecast An effective financial plan can be either static or dynamic (True or False) O True False