1. Multiple classes of stock are primarily created to:

A. allow certain shareholders to retain control of a firm.

B. replace cash dividends with share repurchases.

C. allow common stock to have cumulative privileges.

D. eliminate preemptive rights.

E. ensure all shareholders have equal rights.

2. Which one of these statements related to depreciation is correct for a firm with taxable income of $121,600 and aftertax income of $74,200?

A. Depreciation increases the net book value of the firm's assets.

B. Depreciation in a non-cash expense that increases the firm's cash flows.

C. Depreciation lowers the firm's net income but does not affect its cash flows.

D. Depreciation has no effect on either the firm's net income or its cash flows.

E. Depreciation decreases both the firm's net income and its cash flows.