Which of the following statements is CORRECT? O The more depreciation a firm reports, the higher its tax bill, other things held constant. O People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line." O Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits. O Net cash flow (NCF) is often defined as follows: Net Cash Flow Net Income + Depreciation and Amortization Charges. O Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Which of the following statements is CORRECT?
O The more depreciation a firm reports, the higher its tax bill, other things held constant.
O People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income
statement, hence it is often called "the bottom line."
O Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported
profits.
O Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and
Amortization Charges.
O Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a
reduction in the firm's net cash flow.
Transcribed Image Text:Which of the following statements is CORRECT? O The more depreciation a firm reports, the higher its tax bill, other things held constant. O People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line." O Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported profits. O Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges. O Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's net cash flow.
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