Question

Which of the following statement is/are correct? 1. If ROIC > WACC, a firm's growth will...

Which of the following statement is/are correct?

1. If ROIC > WACC, a firm's growth will decrease a firm's value, which suggests a firm is generating negative FCF

2. FCF is the cash available from operation and ready for distribution to stockholders and debt holders after making necessary investments to support operation

3. Notes payable is part of operating current liability

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Answer #1

If return on invested capital is higher than weighted average cost of capital that means that form in generating enough cash flows and profitability in order to beat its cost of capital. statement (1) is false.

Free cash flows is the cash available to the firm before payment of any interest and other non operating expenses so it is not directly distributable to the shareholders.Statement (2) is false.

Notes payable is a part of current liability since it is to be paid within a year.

Correct answer is option(3)

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