You are to calculate operating cash ﬂow using the following information: sales, net income, depreciation, and net initial investment. If interest expenses are zero, then it would likely be easiest
For you to use the _______________________ approach.

Question

Quizplus · Accepted Answer

The bottom-up approach starts with net income and adds back non-cash expenses (such as depreciation) and subtracts any increases in working capital and net initial investment. Since interest expenses are zero in this scenario, the tax shield approach (which deals with the tax savings from interest expenses) is not necessary. The conventional approach can also be used but may be more cumbersome. Depreciation should be included in the calculation, but it is not the primary approach. Therefore, the best choice is the bottom-up approach.

You Are to Calculate Operating Cash ﬂOw Using the Following