Question

Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance?a. The company's operating income declined.b. The company's expenditures on fixed assets declined.c. The company's cost of goods sold increased.d. The company's depreciation and amortization expenses declined.e. The company's interest expense increased.

Answer 1

Answer:

Option D) The company's depreciation and amortization expenses declined

Explanation:

When Aubey Aircraft´s depreciation and amortization decrease, it has less cost of sales and an improvement in the Gross Margin, hence,  in the Net Income, but this enhancement in the Net Income has an opposite effect on Net Cash Flow because less depreciation and amortization means less Net Cash Flow,  

Net Cash Flow it's defined by Net Income plus depreciation and amortization, a less Depreciation means less Net Cash Flow.