solution

Which of the following statements is CORRECT?

a. Depreciation and amortization are not cash charges, so
neither of them has an effect on a firm’s reported profits.

b. The more depreciation a firm reports, the higher its tax
bill, other things held constant.

c. People sometimes talk about the firm’s net cash provided
(used) by operations, which is shown as the lowest entry on the
income statement, hence it is often called “the bottom line.”

d. Depreciation reduces a firm’s cash balance, so an increase in
depreciation would normally lead to a reduction in the firm’s net
cash flow.

e. Net cash provided (used) by operations is often defined as
follows: Net cash flow provided (used) by operations = Net Income +
Noncash Adjustments + Working Capital Adjustments.