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    Question

    Free cash flow to the firm from net income is equivalent to:

    A Net Income + noncash charges + after-tax interest – capital expenditure – working capital investment Correct Answer Incorrect Answer
    B Net Income + non-cash charges + interest – capital expenditure – working capital investment Correct Answer Incorrect Answer
    C Net Income + non-cash charges + interest – capital expenditure Correct Answer Incorrect Answer
    D Net Income + after tax interest – capital expenditure – working capital investment Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Free cash flow (FCF) is the cash a company generates after taking into consideration cash outflows that support its operations and maintain its capital assets. In other words, free cash flow is the cash left over after a company pays for its operating expenses and capital expenditures (CapEx). It can be calculated as follows: Free cash flow to the firm = Net Income + non-cash charges + after tax interest – capital expenditure – working capital investment

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