1. Which one of the following statements related to an income statement is correct?
Net income is distributed to dividends and paid-in surplus.
Taxes reduce both net income and operating cash flow.
Interest expense is included in operating cash flow.
Depreciation does not affect taxes since it is a non-cash expense.
Interest expense increases the amount of tax due.
2. Which of the following can be used to compute the return on equity?
I. Profit margin × Return on assets
II. Return on assets × Equity multiplier
III. Profit margin × Total asset turnover × Debt-equity ratio
IV. Net income / Total assets
II and III only.
I, II, III, and IV.
II and IV only.
II only.
I, II, and III only.