Cash Flow from Assets Must Be Negative When

question 6

Multiple Choice

Cash flow from assets must be negative when:

• A) The firm has a taxable loss for the year.
• B) The cash flow from creditors and the cash flow from stockholders are both negative.
• C) The cash flow from creditors is negative and the cash flow from stockholders is positive.
• D) The change in net working capital exceeds the net capital spending.
• E) Operating cash flow is less than the change in net working capital.

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Definitions:

Variable Costing Income

An income calculation method that only includes variable costs - costs that fluctuate with production levels - in determining net income.

Absorption Costing Income

A company's income statement approach which includes all costs of production (both fixed and variable) in the cost of goods sold, thereby fully absorbing them.

Variable Cost Ratio

The proportion of variable costs to sales, showing the impact of production volume on total costs.

Break-Even Point

The point at which total cost and total revenue are equal, meaning no net loss or gain, and one has "broken even."