Quiz – Which of the following statements is CORRECT?

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition and 10th Edition

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Which of the following statements is CORRECT?
a. The more depreciation a company has, the higher its taxes, other things held constant.
b. People sometimes discuss cash flow, which is shown as the last entry on the income statement, which is why it is often called "the bottom line.”
c. Depreciation reduces a company's cash, thus an increase in depreciation would normally lead to a reduction in the firm’s cash flow.
d. Operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes.
e. Depreciation is not a cash charge, so it does not have an effect on profits.

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