The Extent to Which a Firm Adjusts Net Income for Changes

question 125

Multiple Choice

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations under the indirect method depends on the nature of its operations.Capital-intensive firms will likely show a substantial

• A)addback to net income for depreciation expense.
• B)subtraction from net income for depreciation expense.
• C)addback to net income for capital expenditures.
• D)subtraction from net income for capital expenditures.
• E)subtraction from retained earnings for depreciation expense.

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Definitions:

Marginal Rate of Substitution

The rate at which a consumer is willing to substitute one good for another, maintaining the same level of utility.

Utility Function

A formula used by economists to map the degree of happiness or satisfaction one derives from consuming quantities of goods and services.

Consumption

The action of using up goods and services to satisfy needs or desires.

Income

The financial gain received by an individual or entity, usually through employment, investments, or business operations.