The operating cash flow of a cost-cutting project:
A) is equal to the depreciation tax shield.
B) is equal to zero because there is no incremental sales.
C) can only be analyzed by projecting the sales and costs for a firm's entire operations.
D) includes any changes that occur in the current accounts.
E) can be positive even though there are no sales.

Question

Quizplus · Accepted Answer

The operating cash flow of a cost-cutting project can be positive even without any incremental sales because cost-cutting measures can reduce expenses, thus increasing cash flows. Therefore, option E is correct. Option A is incorrect because the depreciation tax shield is a separate cash flow that comes from tax savings due to depreciation deductions. Option B is incorrect because operating cash flow includes all cash inflows and outflows related to operations, not just incremental sales. Option C is incorrect because the analysis of operating cash flow for a cost-cutting project can be viewed in isolation from the firm's overall operations. Option D is incorrect because changes in current accounts are included in working capital, not operating cash flow.

The Operating Cash Flow of a Cost-Cutting Project