10. The Chief Financial Officer of Company X decides to purchase 1000 units of a

Question

10. The Chief Financial Officer of Company X decides to purchase 1000 units of a key component for the company's core Widget line for $1.0 million in cash. The purchase is recorded as the final entry at the close of business on the last working day of Fiscal Year 2012. As a resul.... A. The Gross Margin declines. B. The Payables Turnover ratio increases. C. The Return on Equity increases D. The Cash Flow Margin declines 11. Which of the following is likely to cause the largest Cash Outflow: A. Sale of a 30 Story Office building owned by the company for $120 million. B. Purchase a $20,000 copy machine. C. Establishing a $50,000 line of credit D. An acquisition of a competitor for $1.0 million in stock. 12. Which of the following would not be an appropriate reason for a firm to repurchase its stock: A. As an investment if management believes the market has undervalued the stock price. B. In order to have sufficient shares to cover employee stock programs. C. Solely to boost Earnings Per Share D. Both A and B. 13. A company comparing the use of Straight Line Depreciation (SLD) and Accelerated Depreciation (DDB) in the first year subsequent to the purchase of a capital asset would find: A. The Fixed Asset Turnover ratio is highest using SLD B. The Fixed Asset Turnover ratio is highest using DDB. C. No difference in the Fixed Asset Turnover ratio. D. The Total Asset Turnover ratio is highest using SLD

Explanation / Answer

10. Option D. As a huge buying is done, net cash outflow will decrease as it's cost will be subtracred from cash inflow(assuming profitable company so net cash flow will be positive before buying) and hence cash flow marmargin will decrease.

2. Option B. All others are either cash inflows or non- cash related activities.

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