QUESTION 1 Which one of the following is the primary difference between operatin

Question

QUESTION 1

Which one of the following is the primary difference between operating cash flow and net income?

0.5 points   

QUESTION 2

A firm has a price-cash flow ratio of 12.5 and a price-book value ratio of 7.6. If the cash flow per share is $4.67, what is the book value per share?

0.5 points   

QUESTION 3

What is the investment cash flow, given the following information?

  

0.5 points   

QUESTION 4

Which one of the following represents the amounts owed by a firm to other parties?

0.5 points   

QUESTION 5

Which one of the following is most apt to vary directly with sales?

0.5 points   

QUESTION 6

What is the investment cash flow?

  

Explanation / Answer

Q -1 operating cash flows represents the cash generated by the company from its core operations. To evaluate cash flows from operations we add back non-cash expenditure (depreciation) and any interest bearing expenses for short and long-term borrowings.

As per the question we need to choose primary, so out of these expenditures we need to select depreciation, because assets are fundamental for running the company’s operations. So, the company can’t do away with the depreciation expenses. On the other hand, the interest expenses are not necessary to appear on the income statement because at times a firm operates without any outside borrowing or in other words it operates on 100% equity financing. However, it is very less likely to happen, because a firm generally leverage some part of its capital to reduce the tax burden, as debts are tax deductible.

So, the correct option is depreciation

Q-2

Price/Cash Flow = 12.5

Price/ Book Value = 7.6

Cash-Flow per share = $4.67

Price = Cash Flow * 12.5

Price = 4.67 * 12.5 = $58.375

Book Value per share = Price/7.6

Book value per share = $58.375/7.6

Book Value per share = $7.68

Q-4

There are two divisions of a balances sheet i.e. Assets and Liabilities. Assets represents the application of fund that is owned by a firm. On the other hand, Liabilities represents the source of fund that the firm owes to outsiders.

So, the correct option is Liabilities

Q-5

The correct option is Current Assets, it includes items such as inventories, receivables, and pre-paid expenses. These expenses are likely to vary with the sales, because we need inventories to make sure that goods aren’t running out of stock. Moreover, receivables and prepaid expenses are also likely to vary from customers and subscriptions’ end, as the firm sells some part of its revenues on credit.

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