Essentials of Corporate Finance
Essentials of Corporate Finance
8th Edition
ISBN: 9780078034756
Author: Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 2, Problem 4CRCT
Summary Introduction

To discuss: The list of items found in the net income that is not a part of the operating cash flow.

Introduction:

Operating cash flow refers to the cash flow from operating activities or primary activities of the firm. Net income refers to the total income from all the activities of the firm for a given financial period.

The list of items found in the net income that is not a part of the operating cash flow:

  • Depreciation.
  • Interest expense.

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Students have asked these similar questions
Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference
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Essentials of Corporate Finance

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