Capitalization - CFO

[rexthedog]

[question removed by admin]
I have answered B:
The correct answer is C ???
Surely Capitalization results in higher assets which = lower D/E
Also, Capitlization is a CFI, so when capitalized isnt CFI lower and CFO higher??

OFFICIAL ANSWER:
In a period an expenditure that is capitalized the firm’s:
Total assets increase initially (before the impact of depreciation charges). Debt-to-equity and ratio is initially unaffected. However at the end of the accounting period, depreciation charges will lower the net book value of the company’s assets.
Cash outflow from operations lowers.

 

[Mosstastic]

Expensing an item will hanve an outflow of CFO, lowering net income in the first year (the whole expense is taken in year 1).
Thus, if you capitalize, you have higher CFO in the first year.
The question is asking which measure will decarese, therefore, CFO outflow will decrease under capitalizing resulting in higher CFO in year 1

 

[mohammad.belaal]

its not CFO its CFO outflow, mind the difference they aren’t same…