Cash Flows and Performance Evaluation Monster Motor Company reported net income of $370,000 and an increase in cash and cash equivalents of $560,000 in 2000. A total of $230,000 was reported as cash generated from operations in Monster’s cash flow statement. You have been asked to provide assistance in interpreting the cash flows for 2000 and in preparing a cash flow projection for the company for 2001:

a. Why isn’t the change in cash and cash equivalents for the year always a good predictor of cash generated by operations?

b. Assuming the level of sales in 2001 is the same as in 2000, would you expect an increase of $560,000 in cash and cash equivalents in 2001? Explain.

c. Why is cash generated from operations not always a good predictor of net income?

d. Assuming the level of sales in 2001 is the same as in 2000, what amount of net income would you expect Monster Motors to report for 2001? Explain why.