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Question
The Nantell Corporation just purchased an expensive piece of equipment. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
a. Nantells taxable income will be lower.
b. Nantells operating income (EBIT) will increase.
c. Nantells cash position will improve (increase).
d. Nantells reported net income for the year will be lower.
e. Nantells tax liability for the year will be lower.
Answer
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Related questions
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Q:
Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level, it would have had, had it been operating at full capacity. What target Fixed Assets/Sales ratio should the company set?
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ANSWER: c
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Fixed assets $100
% of capacity utilized 40%
Sales at full capacity = Actual sales / % of capacity used = $625.00
u200b
Target FA/Sale ratio = Actual FA/Full capacity sales = 16.0%
LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
35. Fairchild Garden Supply expects $590 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales). All dollars are in millions. What is the projected inventory turnover ratio for the coming year?
a. 3.84 times
b. 3.23 times
c. 3.63 times
d. 3.60 times
e. 3.40 times
ANSWER: e
RATIONALE: Current yr.'s sales $590
Growth rate 15%
Projected sales $678.5
Req. inventories = $30.2 + 0.25 Projected sales
= $30.2 + 0.25 $678.5 = $199.8
u200b
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u200b
LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
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Q:
Zervos Inc. had the following data for last year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? Do not round your intermediate calculations.
Original Revised
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u200b
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d. 34.01 days
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Q:
Which of the following statements is CORRECT?
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c. Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.
d. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.
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Q:
A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 110 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
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Q:
Whitman Antique Cars Inc. has the following data, and it follows the residual dividend model. Some Whitman family members would like more dividends, and they also think that the firm's capital budget includes too many projects whose NPVs are close to zero. If Whitman reduced its capital budget to the indicated level, by how much could dividends be increased, holding other things constant?
u200b
Original capital budget $3,000,000
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Net income $3,500,000
% Debt 33%
u200b
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Q:
Chicago Brewing has the following data, dollars in thousands. If it follows the residual dividend model, what will its dividend payout ratio be?
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% Debt 45%
Net income (NI) $3,300
u200b
a. 3.95%
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