Which of the Following Statements Is CORRECT

question 132

Multiple Choice

Which of the following statements is CORRECT?

• A) The current cash flow from existing assets is highly relevant to investors.However,since the value of the firm depends primarily upon its growth opportunities,accounting net income projections from those opportunities are the only relevant future flows with which investors are concerned.
• B) Two metrics that are used to measure a company's financial performance are net income and free cash flow.Accountants tend to emphasize net income as calculated in accordance with generally accepted accounting principles.Finance people generally put at least as much weight on free cash flows as they do on net income.
• C) To estimate the net cash provided by operations,depreciation must be subtracted from net income because depreciation is a non-cash charge that has been added to revenue.
• D) Interest paid by a corporation is a tax deduction for the paying corporation,but dividends paid are not deductible.This treatment,other things held constant,tends to discourage the use of debt financing by corporations.
• E) If Congress changed depreciation allowances so that companies had to report higher depreciation levels for tax purposes in 2019,companies would have lower free cash flows in 2019.

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Definitions:

Long-Run Equilibrium

A state in which economic forces such as supply and demand are balanced and in the absence of external influences the values of economic variables will not change.

Economic Expansions

Phases in the business cycle where the economy grows, characterized by increased output, employment, and consumer spending.

U.S. Price Level

An index that measures the average prices of goods and services across various sectors in the United States over a specific period.

Real GDP

A metric that adjusts for inflation to show the value of all goods and services produced in an economy during a specific year, using prices from a chosen base year.