Question 1 Firms A and B have identical gross profit margins but B has a smaller

Question

Question 1

Firms A and B have identical gross profit margins but B has a smaller operating profit margin. Which of the following is the most likely explanation?

Firm B spends more on tax preparation expenses

Firm B has more interest expense

Firm B pays a lower tax rate

Firm B has less depreciation expense

none of the above is a likely explanation

4 points   

Question 2

Which of the following is a source of cash flow from operating activities?

an increase in accounts receivable

an increase in accounts payable

the sale of a mainframe computer

the sale of new shares of common stock

a decrease in depreciation

4 points   

Question 3

Firm A's gross profit margin is much smaller than the other firms in the industry. Which of the following is the most likely explanation?

Firm A has a brand-new, highly efficient production facility.

Firm A faces a higher tax rate.

Firm A uses too much middle management.

Firm A is noted for selling inferior products

Firm A has the only non-unionized workforce in the industry

Firm B spends more on tax preparation expenses

Firm B has more interest expense

Firm B pays a lower tax rate

Firm B has less depreciation expense

none of the above is a likely explanation

Explanation / Answer

Answer:

1. (E) NOne of the Above

2. (B) an Increase in Account Payable. (Increase in Current Liability)

3. (D) Firm A is noted for selling inferior product.

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