Which of the Following Statements Is CORRECT

question 36

Multiple Choice

Which of the following statements is CORRECT?

• A)The more depreciation a firm reports, the higher its tax bill, other things held constant.
• B)People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line."
• C)Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.
• D)Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges.
• E)Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits.

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Definitions:

Statement of Comprehensive Income

A financial report that includes not only net income, but also other forms of comprehensive income such as unrealized gains or losses on investments.

Earnings Before Interest and Taxes

A financial metric indicating the profitability of a business before accounting for interest and tax expenses.

Return on Assets

A financial metric that assesses a firm's ability to generate earnings from its assets, determined by dividing its net income by its overall assets.

Earning Per Share

The earnings a company makes per share of its common stock outstanding, signifying how profitable the company is.