Why Is Depreciation Added to Net Income to Determine Cash

question 31

Multiple Choice

Why is depreciation added to net income to determine cash flow from operations?

• A) To compensate for financial risk.
• B) Depreciation is an expense but not a cash outflow.
• C) It is standard procedure when capital budgeting for a multinational corporation.
• D) Net income is understated due to excessive depreciation.

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Definitions:

Lava Flow

Molten rock that erupts onto the Earth's surface during a volcanic eruption, which cools and solidifies into igneous rock.

Dike Unit

A vertical or steeply inclined sheet of rock that is created when magma intrudes into a crack then solidifies.

Depositional

Relating to the process in which material is laid down or deposited by various means, including water, wind, or ice.

Cenozoic Basalts

Volcanic rocks that were formed during the Cenozoic era, known for their dark color and high iron and magnesium content.