The Present Value of the Expected Net Cash Inflows for a Project

question 65

Multiple Choice

The present value of the expected net cash inflows for a project will most likely exceed the present value of the expected net profit after tax for the same project because

• A) Income is reduced by taxes paid,but cash flow is not.
• B) There is a greater probability of realizing the projected cash flow than the forecasted income.
• C) Income is reduced by dividends paid,but cash flow is not.
• D) Income is reduced by depreciation charges,but cash flow is not.
• E) Cash flow reflects any change in net working capital,but sales do not.

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Definitions:

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets, indicating the company's ability to generate additional revenues.

Cash Flow from Assets

The total amount of money being transferred in and out of a business, especially from operational, investing, and financing activities.

Dividends Paid

The portion of a company’s earnings distributed to its shareholders, usually in the form of cash or additional shares.

Financial Leverage

The use of borrowed capital (debt) to increase the potential return of an investment.