#1
Which of the following is NOT a component of cash flow estimation in corporate finance?
Inventory Valuation
ExplanationNot directly part of cash flow estimation as it pertains more to inventory management.
#2
Which of the following best describes the purpose of cash flow estimation in corporate finance?
To assess a company's ability to generate cash to meet its obligations and opportunities
ExplanationCash flow estimation helps in evaluating a company's capacity to meet its financial obligations and opportunities.
#3
What is the primary difference between cash flow and net income?
Net income includes non-cash expenses, while cash flow does not
ExplanationCash flow excludes non-cash expenses, which are included in net income.
#4
What does the term 'Net Working Capital' represent in cash flow estimation?
Total current assets minus total current liabilities
ExplanationNet working capital is the difference between total current assets and liabilities.
#5
What does the term 'Discounted Cash Flow (DCF)' refer to in cash flow estimation?
A method used to evaluate the value of an investment based on its expected future cash flows
ExplanationDCF is a method for valuing investments based on projected future cash flows.
#6
What is the formula for Free Cash Flow (FCF)?
Operating Cash Flow - Capital Expenditure
ExplanationFree cash flow is calculated by subtracting capital expenditure from operating cash flow.
#7
Which of the following items would typically be added back to net income in the indirect method of cash flow statement preparation?
Depreciation Expense
ExplanationDepreciation expense is added back to net income as it's a non-cash expense.
#8
What does the term 'Working Capital' represent in cash flow estimation?
The difference between current assets and current liabilities
ExplanationWorking capital is the difference between a company's current assets and liabilities.
#9
Which of the following is NOT a method used for cash flow estimation?
DuPont Analysis
ExplanationDuPont Analysis is a method for analyzing a company's return on equity, not cash flow.
#10
Which financial statement is directly used to calculate cash flow from operating activities?
Income statement
ExplanationCash flow from operating activities is derived directly from the income statement.
#11
In cash flow estimation, what does the term 'Sunk Cost' refer to?
A cost that has already been incurred and cannot be recovered
ExplanationSunk cost refers to expenses that have already been paid and cannot be recovered.
#12
Which of the following statements regarding Cash Flow from Financing Activities is true?
It includes cash received from issuing stock
ExplanationCash flow from financing activities includes proceeds from issuing stock.
#13
In cash flow estimation, what does the term 'Opportunity Cost' refer to?
The cost of an alternative that must be forgone in order to pursue a certain action
ExplanationOpportunity cost is the cost of foregoing an alternative when making a decision.
#14
Which of the following adjustments is typically made when calculating Cash Flow from Operating Activities using the indirect method?
Adding back depreciation expense
ExplanationDepreciation expense is added back to net income when using the indirect method.
#15
In cash flow estimation, what does the term 'Marginal Cost' refer to?
The cost incurred for additional units of production or sales
ExplanationMarginal cost represents the cost incurred for producing or selling additional units.