1. A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?
The firm's cash flow would increase.
The firm's reported net income would increase
The firm's operating income (EBIT) would increase.
The firm's tax payments would increase.
The firm's taxable income would increase.
2. During 2016, Star Academy had revenue of $427. Cost of goods sold and depreciation were $262 and $103. In addition, the academy had an interest expense of $76 and an average tax rate of 23%. (All of the numbers are in thousands.) What is their operating cash flow?
$47.74
$55.26
$62.00
$150.74
None of these