The Bottom-Up Approach to Computing the Operating Cash Flow Applies

question 57

Multiple Choice

The bottom-up approach to computing the operating cash flow applies only when:

• A) both the depreciation expense and the interest expense are equal to zero.
• B) the interest expense is equal to zero.
• C) the project is a cost-cutting project.
• D) no fixed assets are required for a project.
• E) both taxes and the interest expense are equal to zero.

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Definitions:

Fixed Assets

Long-term tangible assets that a firm uses in its operations and that are not expected to be consumed or converted into cash within a year.

Long-Term Liabilities

Obligations a company is due to pay after one year or more, such as bonds payable, long-term loans, and pension obligations.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the owners' share of the company.

Price-Earnings Ratio

A financial metric that evaluates a company's current share price relative to its per-share earnings, indicating market expectations and stock valuation.