CFA Practice Question

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CFA Practice Question

Select the correct statement(s).

I. Capitalized interest appears as part of investing cash inflows.
II. Expensed interest reduces operating cash flows.
III. Analysts should include capitalized interest when calculating a firm's interest coverage ratios.
Correct Answer: II and III

I: Capitalized interest appears as part of investing cash outflows, not inflows.

User Contributed Comments 19

User Comment
bundy Read carefully Outflows not inflows!!!
soorajiyer Yes, it tricked me :(
rocyang same here. gotta read more carefully
cfaajay when will i stop making these kind of mistakes :-(
investoprenuer Nice one. Got tricked!
jonan203 inflows, i see what you did there...
Shaan23 Thats an ass kicker...
Timothy90 inflows... thats just dirty
enetis nasty! outflows!!!!
robbiecow Just plain mean!
Yrazzaq88 NASTYYYYYY!!
praj24 god dammit!
alejandroc Shows you I'm falling asleep over the laptop :,)
leeboy im gonna fail this
ashish100 lmao! the most depressing comment section on analyst notes.
choas69 OMG!@
Rudger how does expensed interest reduce operating cash flow? It has to be paid either rway, therefore in both cases the Company will have to pay the interest right?
UcheSam That question caught me off-guard. One just need to be extra careful reading the question.
UcheSam @Rudger expensed interest is treated as operating not investing cash flow. It would have been investing had it been it was capitalized but that's not the case. Besides, its an outflow thereby reducing CFO.
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