Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

What is the impact of an increase in deferred tax liabilities of \$20\text{ million} per year on unlevered free cash flows (FCFs)?

Unlevered FCFs increase by \$20\text{ million} per year.

Unlevered FCFs decrease by \$20\text{ million} per year.

Unlevered FCFs decrease by the present value of \$20\text{ million} per year.

Unlevered FCFs are unaffected by changes in deferred tax liabilities.

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Understand the concept of deferred tax liabilities: Deferred tax liabilities represent taxes that a company owes but has not yet paid. They arise due to temporary differences between the accounting income and taxable income, often caused by differences in depreciation methods or revenue recognition.

Recognize the relationship between deferred tax liabilities and cash flows: An increase in deferred tax liabilities means the company is deferring tax payments to future periods, which effectively increases the cash available in the current period.

Define unlevered free cash flows (FCFs): Unlevered FCFs represent the cash flows available to all investors (both debt and equity holders) before accounting for interest payments. They are calculated as operating cash flows minus capital expenditures and taxes.

Analyze the impact of the increase in deferred tax liabilities: Since deferred tax liabilities reduce the immediate tax payment obligation, they increase the cash available in the current period. This increase in cash flow directly impacts unlevered FCFs by increasing them by the same amount as the deferred tax liability increase.

Conclude the relationship: An increase in deferred tax liabilities of $20 million per year will result in an increase in unlevered FCFs by $20 million per year, as the deferred taxes reduce the immediate tax outflow, leaving more cash available for operations.