Chapter 4

Depreciation is considered to be an outflow of cash.

False

Operating cash flow (OCF) is equal to a firm's net operating profits after taxes minus all non-cash charges.

False

In the statement of cash flows, cash flows from operating activities are cash flows directly related to purchase and sale of fixed assets.

False investment activities

Operating cash flow (OCF) is calculates by deducting depreciation from net operating profit after taxes.

False, OCF = NOPAT + depreciation

In the statement of cash flows, the cash flows from financing activities result from debt and equity financing transactions; including incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to repurchase stock or pay cash dividends.

True

Net operating profit after taxes (NOPAT) represents a firm's earnings before interest and after taxes.

True

To assess whether any developments have occurred that are contrary to a company's financial policies, the financial manager should pay special attention to both the major categories of cash flow and the individual items of cash inflow and outflow.

True

A firm's free cash flow (FCF) represents the amount of cash flow available to investors (stockholders and bondholders) after the firm has met all operating needs and after having paid for net fixed asset investments and net current asset investments.

True, FCF = OCF - net fixed asset investment (NFAI) - net current asset investment (NCAI)

The net current asset investment (NCAI) is defined as the change in current assets minus the change in sum of the accounts payable and accruals.

True, NCAI = change in current assets - change in (accounts payable + accruals)

A corporation _______.

can use different depreciation methods for tax and financial reporting purposes

The three categories of a firm's statement of cash flows are _____.

cash flow from operating activities, cash flow from investment activities, and cash flow from financing activities

Which of the following is an example of noncash charges? 1. dividends paid 2. depreciation 3. accruals 4. interest expense

depreciation

The cash flows from financing activities section of the statement of cash flows includes _______.

dividends paid

The cash flows from operating activities section of the statement of cash flows includes _______.

labor expense

The depreciable value of an asset, under MACRS, is the ________.

the original cost plus installation