Which of the Following Statements Is False

question 19

Multiple Choice

Which of the following statements is false?

• A) The only cash effect for depreciation is the tax savings provided by its deduction to derive taxable income.
• B) Depreciation is a non-cash expense that reduces profit but involves no outflow of cash.
• C) Depreciation expense is included in the investing activities section of the cash flow statement.
• D) Depreciation expense is added to profit in the operating activities section of the statement of cash flows because it had no cash effect on profit under the indirect method.

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Definitions:

Miller Model

A theory on dividend policy developed by Merton Miller, which considers the impact of taxes and bankruptcy costs on a company’s optimal capital structure.

MM Model

Modigliani-Miller Theorem; a foundational concept in corporate finance that proposes, under certain market conditions, the valuation of a firm is unaffected by its capital structure.

Personal Taxes

Taxes levied on individuals' income, capital gains, and other forms of personal wealth.

Operating Leverage

The extent to which fixed costs are used in a firm’s operations. If a high percentage of a firm’s total costs are fixed costs, then the firm is said to have a high degree of operating leverage. Operating leverage is a measure of one element of business risk, but does not include the second major element, sales variability.