The Top-Down Approach to Computing the Operating Cash flOw

question 272

Multiple Choice

The top-down approach to computing the operating cash flow:

• A) Ignores all noncash items.
• B) Applies only if a project produces sales.
• C) Can only be used if the entire cash flows of a firm are included.
• D) Is equal to sales - costs - taxes + depreciation.
• E) Includes the interest expense related to a project.

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Definitions:

Normal Balance

The side (debit or credit) on which an account increases, determined by the account type in the accounting equation.

Financial Statement

A formal record of the financial activities and position of a business, individual, or other entity, typically including a balance sheet and income statement.

Permanent/Temporary

Denotes the duration of financial accounts or business strategies: "permanent" indicates long-term endurance, while "temporary" suggests a short-term or temporary existence.

Amortization

The process of gradually writing off the initial cost of an intangible asset over a period of time, reflecting its consumption, expiration, or decline in value.