What are cash flow diagrams used for?

• A. To measure customer satisfaction.
• B. To predict stock price movements.
• C. To determine depreciation schedules.
• D. To visualize the timing and direction of cash flows in a transaction.

Answer: (D)

Cash flow diagrams visualize the timing and direction of cash flows in a transaction. They map out when money is paid out or received over the life of a deal, making it easy to see how timing affects value and to compare financing options. This helps in evaluating financial viability and calculating metrics like net present value or internal rate of return. The other choices don’t fit because they relate to customer surveys, market forecasting, or accounting rules, not to illustrating the cash movements of a specific transaction.