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:

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity supplied, typically upward sloping.

Ticket Scalping

The practice of buying tickets to an event and reselling them at a higher price, often to profit from high demand and limited supply.

Price Ceiling

A government-imposed limit on how high a price can be charged on a product or service, often meant to protect consumers.

Invisible Hand

A metaphor introduced by Adam Smith to describe how an individual's pursuit of self-interest can lead to good results for society as a whole through the workings of competitive markets.