The Operating Cash Flow of a Cost-Cutting Project

question 94

Multiple Choice

The operating cash flow of a cost-cutting project:

• A) is equal to the depreciation tax shield.
• B) is equal to zero because there is no incremental sales.
• C) can only be analyzed by projecting the sales and costs for a firm's entire operations.
• D) includes any changes that occur in the current accounts.
• E) can be positive even though there are no sales.

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, decay, or obsolescence.

Salvage Value

The estimated value an asset holds upon concluding its lifespan of utility.

Revenue Expenditures

Revenue expenditures are the costs incurred by a business in the normal course of operations, such as rent, utilities, and wages, which are expensed in the current period.

Operating Condition

Refers to the state or circumstances under which a piece of equipment or a system is functioning.