In: Finance
Which of the following statements best describes cash flows that would be shown on a cash budget?
a. |
The cash flows shown on the cash budget are the actual cash inflows and outflows and thus different from the firm’s free cash flows, because FCF reflects after-tax operating income and the investments required to maintain future operations. |
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b. |
Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation); hence, depreciation is set forth on a separate line in the cash budget. |
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c. |
If cash inflows from collections occur in equal daily amounts but most payments are made regularly on the 10th of each month, then it is not necessary to use a daily cash budget. A cash budget focused on the end of the month will suffice. |
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d. |
Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales |
CORRECT OPTION IS -
A.The cash flows shown on the cash budget are the actual cash inflows and outflows and thus different from the firm’s free cash flows, because FCF reflects after-tax operating income and the investments required to maintain future operations.
OTHERS ARE INCORRECT -
DEPRECIATION IS NOT PART OF CASHFLOWS
10TH OF MONTH IS NOT A CONDITION FOR CASH BUDGET
SOUND WORKING CAPITAL POLICY REDUCES TIME