All of the Following Statements About Free Cash Flow Are

question 163

Multiple Choice

All of the following statements about free cash flow are false except:

• A) Significant free cash flow indicates less potential to finance new investments.
• B) Free cash flow is most commonly calculated by subtracting capital expenditures from cash provided by operations and then adding cash dividends.
• C) Free cash flow is not reported on the statement of cash flows.
• D) Significant free cash flow indicates less potential to pay additional dividends.

---

Definitions:

Avoidable Cost

A cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost.

Activity-Based Costing

An accounting method that assigns costs to products based on the activities involved in producing those products.

Decision

The process of making choices among alternative courses of action.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and thus should not affect future business decisions.