A Company Uses the Indirect Method to Prepare the Statement

question 52

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. In determining the net cash flow from operating activities, which of the following items would be added to net income?

• A)An increase in dividends paid would be added to net income.
• B)An increase in accrued liabilities would be added to net income.
• C)A decrease in accounts payable would be added to net income.
• D)A gain on the sale of land would be added to net income.

Understand the concept of the cost of debt and its significance in the overall cost of capital.

Grasp the basics of the Dividend Growth Model (DGM) and its use in estimating the cost of equity.

Identify the appropriate cost of capital for individual projects based on the specific risks and characteristics of the project.

Acknowledge the influence of market dynamics, such as stock market increases, on firms' WACC.

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Definitions:

Resource Unemployment

Refers to the state where economic resources are not being used to their full potential, contributing to less-than-optimal output or employment.

Potential Output

The highest level of economic output that can be achieved sustainably without causing inflation.

Long Run

A period in which all inputs can be adjusted by firms, and all market adjustments have been made.

Nominal Wages

The amount of money received by an employee before any deductions and not adjusted for inflation; the face value of wages.