Question

The first step in the capitalized cash flow approach is to normalize the entity's income for any one-time or non-recurring revenue or expense items.

Because these items would not normally occur in the go-forward operations of the entity, they should be deducted or added back to net income.

The normalized income amount is then adjusted for the following:

a) Non-operating revenue
b) Tax expenses
c) Extraordinary expenses
d) Depreciation

Answer 1

The first step in the capitalized cash flow approach is to normalize the entity's income by adjusting for one-time or non-recurring revenue or expense items. Then, the income amount is adjusted for non-operating revenue, tax expenses, extraordinary expenses, and depreciation.

Step-by-step explanation:

In the capitalized cash flow approach, the first step is to normalize the entity's income by adjusting for any one-time or non-recurring revenue or expense items. These items are deducted or added back to net income because they are not expected to occur in the future operations of the entity. After normalizing the income amount, it is further adjusted for non-operating revenue, tax expenses, extraordinary expenses, and depreciation.