What Is the Primary Reason Why the Cash Flow from Assets

question 58

Multiple Choice

What is the primary reason why the cash flow from assets (CFA) is adjusted when used to value a firm?

• A)Depreciation is a non-cash expense so both it and the depreciation tax shield must be eliminated from the CFA.
• B)Net working capital (NWC) is excluded from firm valuations so the change in NWC must be added back to the "normal" CFA calculation
• C)Interest expense is a financing cost and thus the tax benefit of this expense needs to be eliminated from the CFA.
• D)CFA is normally based on historical performance but since firm valuations are forward looking the CFA must be adjusted for timing.
• E)The CFA must be lowered by the amount of the noncash expenses to ascertain a more accurate firm value.

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Definitions:

Self-adjuster

A component in drum brakes that automatically maintains the correct distance between the brake shoes and drum.

Threaded Self-adjuster

A component in drum brakes that automatically adjusts the brake shoes’ positioning to maintain optimal distance from the drum.

Shoes

Components in drum brakes that press against the drum's interior surface to create friction and slow the vehicle.

Holddown Springs

Components that secure brake shoes in place within the drum brake assembly.