The Extent to Which a Firm Adjusts Net Income for Changes

question 100

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.Service firms will likely show a small amount of

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

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, affecting the company's liquidity.

Cost Of Capital

The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds.

Discounted Cash Flow

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.

Initial Investment

Initial investment refers to the amount of money initially laid out for an investment project or venture.