Train, Inc.’s cash flow from operations (CFO) in 2004 was $14 million. Train paid $8 million cash to acquire a franchise at the beginning of 2004 that was expensed in 2004. If Train had elected to amortize the cost of the franchise over eight years, 2004 cash flow from operations (CFO) would have been: A) $21 million. B) $7 million. C) $22 million. D) unchanged.

Total NI would have gone up by (8 - Depr (1)) = 7 So CFO would have gone up 7 Million Add back the 1 Depr So you end back with 22 Mill.

Thanx a lot. Got it now

A? 14 + 8 (add back expensed franchise) - 1 (amortization) = 21

newsuper – 1 amort gets added back again in the indirect method when you start with NI.

darn, included the amortization as CFO :frowning:

yeah, thanks cpk123

Wouldn’t the purchase of a franchise be considered an investment expense therefore affecting CFI, not CFO?

when you expensed it, it became immediately included and reduced your NI.

Got it. Thanks.