Question

Operating Cash Flows need to be adjusted for net interest expense, because: Finance always uses Interest...

  1. Operating Cash Flows need to be adjusted for net interest expense, because:
  1. Finance always uses Interest Expense when calculating After-tax Cash Flows
  2. Double-counting interest expense would occur when the cash flows are discounted
  3. Interest expense represents an outflow of cash to creditors and not an inflow

Homework Answers

Answer #1

The correct answer is C.

Explanation:

While calculating operating cash flows, We add all the cash inflows and deduct all outflows to generate cash flows. This is because we do the analysis on the basis of cash flow and this is the best method for evaluation of a project.

Cash inflows mostly include revenues an sometimes scrap value. Cash outflows include variable cost, fixed cost, taxes and interest.

So we have to deduct the interest while calculating the operating cash flows.

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