The Advantages of the Direct Method Include All of the Following

question 182

Multiple Choice

The advantages of the direct method include all of the following except:

• A) it allows for more detailed analysis of operating cash flows.
• B) it provides more information than the indirect method to relate cash inflows and outflows.
• C) it allows for more reliable prediction of future cash flows.
• D) comparisons between companies are facilitated since most U.S. companies use the direct methoD.
• Most U.S. companies use the indirect methoD.

---

Definitions:

Salvage Value

The projected value of an asset when it reaches the end of its operational life.

Discount Rate

The discount rate applied in the calculation to ascertain the current value of forthcoming cash flows through discounted cash flow analysis.

Cash Inflows

The money received by a business from its various activities, such as sales, investments, financing, etc.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in a linear fashion.