Tutor profile: Iris C.
Translate this question and answer the question in mandarin: 你好吗？
The question means "how are you?" It is a greeting, no actual meaning to be honest, but it is more of a way to start a conversation. If someone asks you 你好吗?, you can answer 还好 (not bad), 很好 (pretty good).
There are two companies P and Q which are exactly the same, but one P has debt whereas Q doesn’t have any. In this case, which of the two companies would have a higher WACC?
Q has higher WACC because debt is less expensive than equity. The reason that debt is less expensive is because: 1) Interest on debt is tax-deductible; and 2) Debt holders are paid before the equity holders in a liquidation or bankruptcy.
Let’s say that the depreciation expense goes up by $100. How would this affect the financial statements?
Income Statement: The increase in the depreciation expense will decrease operating income. If assuming that the tax rate is 20%, the impact on net income after tax will be $80 lower ($100*(1-20%)). Cashflow Statement: Using the indirect method, the net income at the top of the cash flow statement will decrease by $80, but the $100 increase in the depreciation expense will be added back to operating cashflow as non-cash item. As a result, if assuming no other changes to cashflow, the ending cash will increase by $20. Balance Sheet: The property, plant and equipment will decrease by $100 as a result of increased depreciation expense. However, the cash will increase by $20 (see cashflow statement above). The difference of $80 will be reflected in the equity (retained earnings), which is consistent with the change in income statement.
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