Which of the Following Statements Is CORRECT

question 12

Multiple Choice

Which of the following statements is CORRECT?

• A) Depreciation is included in the estimate of free cash flows (FCF = EBIT(1 - T)+ Depreciation - [Capital expenditures + ΔNOWC]),hence depreciation is set forth on a separate line in the cash budget.
• B) If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of each month,then a regular monthly cash budget will be misleading.The problem can be corrected by using a daily cash budget.
• C) Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.
• D) If a firm wants to generate more cash flow from operations in the next month or two,it could change its credit policy from 2/10,net 30 to net 60.
• E) If a firm sells on terms of net 90,and if its sales are highly seasonal,with 80% of its sales in September,then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365)would probably be lower in October than in August.

---

Definitions:

Absolute Advantage

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.

Lower Cost

A situation where there is a reduction in the total expense required to produce goods or services.

Exchange Rate

The exchange rate determining the worth of one currency in a different currency.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than others, leading to specialized production and trade benefits.