Question #26
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 11
Status: Correct
Correct Answer: A
Question
Free cash flow to the firm (FCFF) adjusts earnings before interest and taxes (EBIT) by:
Answer Choices:
A. deducting taxes, adding back depreciation, and deducting the investments in fixed capital and working capital
B. subtracting investments in fixed capital and working capital
C. adding taxes, deducting depreciation, and adding back the investments in fixed capital and working capital
Explanation
As presented in the reading: FCFF = EBIT (1 – tax rate) + Dep – FCInv – WCInv.