A Security Analyst Obtained the Following Information from Prestopino Products

question 51

Multiple Choice

A security analyst obtained the following information from Prestopino Products' financial statements:
Retained earnings at the end of 2014 were $700,000, but retained earnings at the end of 2015 had declined to $320,000.
The company does not pay dividends.
The company's depreciation expense is its only non-cash expense; it has no amortization charges. The company has no non-cash revenues.
The company's net cash flow (NCF) for 2015 was $150,000.
On the basis of this information, which of the following statements is CORRECT?

• A) prestopino had negative net income in 2015.
• B) prestopino's depreciation expense in 2015 was less than $150,000.
• C) prestopino had positive net income in 2015, but its income was less than its 2014 income.
• D) prestopino's ncf in 2015 must be higher than its ncf in 2014.
• E) prestopino's cash on the balance sheet at the end of 2015 must be lower than the cash it had on the balance sheet at the end of 2014.

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Definitions:

Opportunity Cost

The cost of foregoing the next best alternative when making a decision.

Total Expected Cost

A projection of the total costs associated with a project or business activity, including both fixed and variable costs.

Variable Costs

Costs that vary depending on the amount of production or business operations.

Lease Cost

The expense incurred from leasing equipment or property, typically categorized as an operating expense in financial statements.