Ironman Nutrition has traditionally followed a conservative policy of expensing most costs. However, the new CFO is an advocate of capitalization.
During a meeting with company executives he explains that compared to expensing, capitalization results in all the following EXCEPT:
A) lower income variability
B) lower debt to equity ratio
C) greater initial return on assets
D) higher net cash flow
Anser: D
我以為答案全都不對耶?
Capital lease would result in:
higher income variability (because expense amount is more stable than depreciation amount)
higer D/E ratio (because liability is higher)
lower initial ROA (because lower net income in early year)
the same net cash flow
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