Which of the Following Correctly Adjusts for Depreciation When Calculating

question 17

Multiple Choice

Which of the following correctly adjusts for depreciation when calculating a project's operating cash flow?

• A) (revenues − cash expenses) × (1 − tax rate) + (tax rate × depreciation).
• B) pretax profit + depreciation tax shield.
• C) after-tax profit − depreciation.
• D) ignore depreciation since it is not a cash flow.

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Definitions:

Fixed Assets Turnover Ratio

Measures how effectively the firm uses its plant and equipment. It is the ratio of sales to net fixed assets.

Appraise

To appraise is to evaluate or estimate the nature, quality, ability, extent, or significance of something or someone, often used in the context of property or art valuation.

Proportion

A part of a whole expressed as a fraction or percentage, often used to compare quantities in terms of size or magnitude.

Quick Ratio

A liquidity measure that indicates a company's ability to cover its short-term liabilities with its most liquid assets.