The Direct Method of Reporting Operating Cash Flows

question 12

Multiple Choice

The direct method of reporting operating cash flows:

• A)Is recommended but not required by the FASB.
• B)Must be used by all companies.
• C)Is used by most companies.
• D)Is considered supplementary disclosure.
• E)Is not recommended by the FASB,but is commonly used.

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Definitions:

Internal Rate of Return

A method used in capital budgeting to estimate the profitability of potential investments, calculated as the rate of return where the net present value of all cash flows is zero.

Present Value of Annuity

The current worth of a series of future cash flows, adjusted for interest, often used in calculating loans and investments.

Rate of Return on Investment

A measure of the profitability of an investment, calculated as a percentage of the original investment.

Net Present Value

A financial metric used to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and outflows over a period of time.