If There Is an Unplanned Increase in Inventories, Aggregate Planned

question 127

Multiple Choice

If there is an unplanned increase in inventories, aggregate planned expenditure is

• A)greater than real GDP and firms increase production.
• B)greater than real GDP and firms decrease production.
• C)less than real GDP and firms increase production.
• D)less than real GDP and firms decrease production.
• E)less than real GDP and firms decrease investment.

Adjust reported net income for non-cash expenses and gains or losses on sales of assets.

Understand the direct method for reporting cash flows from operating activities.

Calculate the amount of cash received from customers.

Determine the cash payments for income tax, merchandise, and operating expenses.

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Definitions:

Cash Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

MM

The Modigliani-Miller theorem, a foundational concept in corporate finance proposing that under certain conditions, the value of a firm is unaffected by how it is financed.

Firm's Stock

The capital raised by a corporation through the issuance and subscription of shares representing ownership interest in the company.

Dividend Cuts

A reduction in the dividend payments announced by a company, often due to financial difficulties or a need to retain more earnings for investments.