Question: WorldCom reclassified 3 85 billion of operating expenses as capital expenditures
WorldCom reclassified $3.85 billion of operating expenses as capital expenditures. Explain the effect this reclassification would have on WorldCom’s cash flows. WorldCom’s actions were illegal and clearly designed to deceive investors. But if a firm could legitimately choose how to classify an expense for tax purposes, which choice is truly better for the firm’s investors?
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