1) Why do most audited financial reports to the shareholders include a statement of cash flows in addition to the balance sheet and income statement?
2) In capital budgeting, should the following be ignored, or rather added or subtracted from the new machine’s purchase price when estimating initial cash outflow? When estimating the machine’s depreciable basis?
a. The market value of the old machine is $500, the old machine has a remaining useful life, and the investment is a replacement decision.
b. An additional investment in inventory of $2,000 is required.
c. $200 is required to ship the new machine to the plant site.
d. A concrete foundation for the new machine will cost $250.
e. Training of the machine operator will cost $300.
Most of the audited financial reports to the shareholders include a statement of cash flows in addition to the balance sheet and income statement because this gives a clear indication of the all cash inflows and outflows of cash from the company. This cash flow statement can later be used to compute the balance sheet and income statement of the company and verify the results with the income statement and balance sheet of the company. To avoid any risk in the future,some shareholders use the cash flow statement to compute the balance sheet and income statement on their own and then compare the results.
Thus, most of the audited financial reports to the shareholders include a statement of cash flows in addition to the balance sheet and income statement.
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