Question

Which of the following statements about free cash flow is the most accurate? Group of answer...

Which of the following statements about free cash flow is the most accurate?

Group of answer choices

A. Interest expense, net of tax, is subtracted when calculating free cash flow to the firm.

B. Capital expenditures are ignored when calculating free cash flow to the firm.

C. Principal payments are subtracted when calculating free cash flow to equity.

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Answer #1

Answer-

The Correct Option is C. Principal payments are subtracted when calculating free cash flow to equity.

The Opions A and B are incorrect.

Option A. The Interest expense, net of tax, ( Interest x ( 1 - tax rate) is added but not subtracted when calculating free cash flow to the firm.

Option B. Capital expenditures ( FCInv) are not ignored but subtracted when calculating free cash flow to the firm .

FCFF = Net income + Depreciation + Interest x ( 1 - tax rate) - WCInv - FCInv

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