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e. If a company pays more in dividends than it generates in net income,
its retained. earnings as reported on the balance sheet will decline from
the previous year's balance.
4. Last year Roussakis Company’s operations provided a negative net
cash flow, yet the cash shown on its balance sheet increased. Which of
the following statements could explain the increase in cash, assuming
the company’s financial statements were prepared under generally
accepted accounting principles?
a. The company repurchased some of its common stock.
b. The company dramatically increased its capital expenditures.
c. The company retired a large amount of its long-term debt.
d. The company sold some of its fixed assets.
e. The company had high depreciation expenses.
5. Bartling Energy Systems recently reported $9,250 of sales, $5,750 of
operating costs other than depreciation, and $700 of depreciation. The
company had no amortization charges, it had $3,200 of outstanding
bonds that carry a 5% interest rate, and its federal-plus-state income tax
rate was 35%. In order to sustain its operations and thus generate sales
and cash flows in the future, the firm was required to make $1,250 of
capital expenditures on new fixed assets and to invest $300 in net
operating working capital. By how much did the firm's net income
exceed its free cash flow?
a. $673.27
b. $708.70
c. $746.00
d. $783.30