The bottom-up approach to computing the operating cash flow applies only when:
A) both the depreciation expense and the interest expense are equal to zero.
B) the interest expense is equal to zero.
C) the project is a cost-cutting project.
D) no fixed assets are required for a project.
E) both taxes and the interest expense are equal to zero.

Question

Quizplus · Accepted Answer

The bottom-up approach to computing the operating cash flow only applies when the interest expense is equal to zero. This method involves starting from the individual cash inflows and outflows generated by the project, and then determining the operating cash flow by subtracting operating expenses (excluding depreciation and interest) from revenues. Since interest expense is excluded from the calculation, it is only applicable when there is no interest expense to begin with.

The Bottom-Up Approach to Computing the Operating Cash Flow Applies