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:

Short Run

A period in which at least one input or factor of production is fixed, allowing only some inputs to change.

Long Run

A period of time in economics during which all inputs and factors of production can be adjusted, allowing for full industry adjustment to changes.

Production

The process of combining inputs to make goods or services.

LAC Curves

The Long-Run Average Cost curves, which show the minimum average cost of production at different levels of output.