The Top-Down Approach to Computing the Operating Cash Flow

question 42

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:

Additional Minute

An extra unit of time added to a process or activity beyond the original plan.

Existing Capacity

The current maximum level of output that a company can achieve with its available resources, such as facilities, equipment, and workforce.

Variable Selling Expense

Costs incurred from selling a product that vary directly with the number of units sold, such as commissions and shipping costs.

Specialized Machine

Equipment designed for a specific manufacturing process or product, often custom-made and representing a significant fixed cost.