The Tax Shield Approach to Computing the Operating Cash Flow,given

question 42

Multiple Choice

The tax shield approach to computing the operating cash flow,given a tax-paying firm:

• A)ignores both interest expense and taxes
• B)separates cash inflows from cash outflows
• C)considers the changes in net working capital resulting from a new project
• D)is based on the fact that depreciation does not affect the operating cash flows
• E)recognises that depreciation creates a cash inflow

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Definitions:

Standby Underwriting Agreement

A contract where the underwriter commits to buy any shares not purchased by investors during an initial public offering (IPO) or secondary offering.

Unsubscribed Portion

That part of a new issue of securities not taken up or purchased by investors during an offering period.

Ex-Rights Date

The first trading day when a security is offered for sale in the marketplace without the entitlement to a previously declared rights offering.

Rights Offering

An option for existing shareholders to buy additional shares directly from the company at a pre-determined price, usually at a discount, as a way to raise capital.