Question

In finance, we separate operating decisions from financing decisions and thus exclude ________ as a part of operating income from the income statement. Question 4 options: A) interest expense B) earnings C) dividends D) cash flow

Answer 1

A) interest expense

Step-by-step explanation:

Operating income or EBIT (earnings before interest and taxes) are calculated considering that the company is financed only through equity. The same applies when we are evaluating different projects, since we must be able to determine if the company or project can yield a profit without considering who paid for its operations.

The same applies for taxes, since it doesn't matter how high or low taxes are, if the company doesn't make a profit, then it will pay none.