Gretchen's new business has a positive net income and a marginal tax rate of 21 percent....

Gretchen's new business has a positive net income and a marginal tax rate of 21 percent. Given this, an increase in which one of the following will cause the operating cash flow to increase?

Depreciation

Taxes

Net working capital

Fixed assets

Cost of goods sold

Solutions

Expert Solution

In cash flow from operating activities , we add back the depreciation to the net income as it is not a cash flow, so if the there is an increase in the depreciation amount , it will increase the cash flow from operating activities.

Net income is arrived after deducting the taxes, so if the taxes are increased then net income will be less, cash flow from operating activities is calculated taking net income as the base

Increase in net working capital will be reduced from cash flow operaing activities, so if the net working capital is increases, the cash flow from operating activities will be decreased

Increase in fixed assets is a cash flow investing activities, it doesn't effect the cash flow from operaring activitoes

If cost of goods sold is increased the net inome will be dereased, then cash flow from operating activities will also be decreased.

Option 1 is correct

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 1 year ago

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