Exercise 7-7 - Exercise 7-7(30 minutes Net Income NE NE...

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Exercise 7-7 (30 minutes) Net Cash from Cash Income operations position 1. NE NE + 2. NE NE + 3. + + + 4a. - NE NE 4b. NE (1) + (2) + (2) 4c. - + (2) + (2) 5. NE + + 6. - + (long-run -) + (long- run -) 7. - - (5) + 8. + NE NE 9. + (3) + (4) + (4) 10. NE + + 11. + + + 12. NE NE + 13. NE NE + (1) Deferred tax accounting. (2) Depends on whether tax savings are realized in cash. (3) If profitable. (4) If accounts receivable collected. (5) Depends on whether interest is paid or accrued. Further explanations (listed by proposal number): 1. Substituting payment in stock for payment in cash for its dividends will not affect income or CFO but will increase cash position. 2. In the short run, postponement of capital expenditures will save cash but have no effect on income or CFO. In the long term, both income and CFO may suffer due to lower operating efficiency.
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Exercise 7-7—continued 3. Cash not spent on repair and maintenance will increase all three measures. However, the skimping on necessary discretionary costs will adversely impact future operating efficiency and, hence, profitability.
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