1. How should you use operating costs when calculating incremental cash flows?
A. Subtract operating costs, calculate taxes off of that number, and then add them back.
B. Do not subtract operating costs, and then subtract taxes on operating income before operating costs.
C. Subtract operating costs.
D. Subtract taxes as though operating costs were not tax-deductible. Then subtract operating costs.
2. Which of the following is not a reason why we have to consider changes in net working capital separately?
A. We have to buy inventory to support sales
B. GAAP requires that sales be recorded on the income statement when made, not when cash is received
C. GAAP requires that inventory be recorded as soon items are received
D. GAAP requires that we record the cost of goods sold when the corresponding sales are made