Which of the Following Would Be Added to Net Income

question 4

Multiple Choice

Which of the following would be added to net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

• A) increase in inventory
• B) gain on sale of investments
• C) increase in dividends payable
• D) decrease in accounts receivable

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Definitions:

Marginal Cost of Capital

The cost of obtaining an additional dollar of new capital, which increases as more capital is raised due to increasing risk and/or decreasing attractiveness to investors.

Investment Opportunity Schedule

A graph or listing that shows the relationship between the rates of return on investment and the amount of investment.

MCC

Marginal Cost of Capital is an economic term representing the cost of obtaining one additional unit of capital.

Financial Risk

The variation in a firm’s financial performance caused by using borrowed money (debt, leverage).