The reason to focus on cash flow instead of net income in capital budgeting. Introduction: Operating Cash Flow: The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

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Answer 1

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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General Finance Question

Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

Answer 2

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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Answer 3

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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Answer 4

Question

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

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Answer 5

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

Answer 6

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

Answer 7

Chapter 12, Problem 1Q

Summary Introduction

To explain: The reason to focus on cash flow instead of net income in capital budgeting.

Introduction:

Operating Cash Flow:

The amount of cash used in or generated from the operations of the business is reported under the category of operating cash flow in the statement of cash flow. This is prepared as a part of financial statement at the end of an accounting period. The net balance is calculated and depicted as net cash from operating activities.

Answer 8

Expert Solution & Answer

Answer to Problem 1Q

Cash flow is used instead of accounting income because actual cash is required and spent for the projects or expansion plans of a company.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The capital budgeting is a process to estimate the cash generated and used from a project or new plant.
The net income is just a measure of profitability and doesn’t reflect the actual cash that is available for investment.

Answer 12

Conclusion

So, the reason to consider cash flow is that actual cash is required and spent for the projects or expansion plans of a company.

Answer 13

Ch. 12 - Prob. 1Q Ch. 12 - Prob. 2Q Ch. 12 - Explain why net operating working capital is...Ch. 12 - Why are interest charges not deducted when a...Ch. 12 - Prob. 5Q Ch. 12 - What are some differences in the analysis for a...Ch. 12 - Distinguish among beta (or market) risk,...Ch. 12 - Prob. 8Q Ch. 12 - Prob. 9Q Ch. 12 - If you were the CFO of a company that had to...

Answer to Problem 1Q

Explanation of Solution

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