QUESTIONS 45 THROUGH 68 RELATE TO FINANCIAL STATEMENT ANALYSIS

53. Assume U.S. GAAP (generally accepted accounting principles) applies unless

otherwise noted.

At the beginning of the year, two companies issued debt with the same market

rate, maturity date, and total face value. One company issued coupon-bearing

bonds at par and the other company issued zero-coupon bonds. All other factors

being equal for that year, compared with the company that issued par bonds, the

company that issued zero-coupon debt will most likely report:

A. higher cash flow from operations but not higher interest expense.

B. both higher cash flow from operations and higher interest expense.

C. neither higher cash flow from operations nor higher interest expense.