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7.Explain “free” cash flows. Describe which types of cash flows are free and which are not....

7.Explain “free” cash flows. Describe which types of cash flows are free and which are not. (CH12)

8. Discuss under which scenario it is appropriate to use free cash flows for all debt and equity capital stakeholders. (CH12)

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Answer #1

7)Free cash flow is nothing but the cash available for the firm to pay for its shareholders and debt holders. This is produced through its operations less any capital expenditures. Cash flow and free cash flow is different as cash flow means net cash and cash equivalents which is reported in cash flow statements but in the free cash flow it is cash flow from operations minus cash spend on capital expenditure. The dividends and share buybacks all not included in free cash flows

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