An Example of an Item That Is Deducted from Net

question 48

Multiple Choice

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is:

• A) depreciation expense.
• B) compensation expense related to stock option plans.
• C) income from an investment accounted for using the equity method.
• D) unrealized losses on trading investments

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Definitions:

Zero Coupon Bonds

Bonds that do not pay interest during their lifetime but are issued at a discount and redeemed at face value at maturity.

Capital Structure

The composition of a company's liabilities and shareholders' equity, detailing how a firm finances its overall operations and growth by using different sources of funds.

Cost of Equity

The rate of return that a company needs to generate in order to compensate its equity investors, taking into account the risk associated with the investment.

Market Risk Premium

Market risk premium is the expected return on an investment over the risk-free rate, representing the compensation investors require for taking on higher risk.