Question

In: Finance

Which of the following statements best describes cash flows that would be shown on a cash...

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.
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.
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.
d.

Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales

Solutions

Expert Solution

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

jeff jeffy answered 3 years ago
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