Which of the Following Statements Is CORRECT

question 39

Multiple Choice

Which of the following statements is CORRECT?

• A) Most rapidly growing companies have positive free cash flows because cash flows from existing operations generally exceed fixed asset purchases and changes to net operating working capital.
• B) Changes in working capital have no effect on free cash flow.
• C) Free cash flow (FCF) is defined as follows:
• FCF = EBIT(1 - T)
• + Depreciation
• - Capital expenditures required to sustain operations
• - Required changes in net operating working capital.
• D)Free cash flow (FCF) is defined as follows:
• FCF = EBIT(1 - T) + Capital expenditures.
• E)Managers should be less concerned with free cash flow than with accounting net income. Accounting net income is the "bottom line" and represents how much the firm can distribute to all its investors both creditors and stockholders.

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Definitions:

Chapter 7 Bankruptcy

A provision of the bankruptcy code that involves the liquidation of a debtor's assets to repay creditors.

Creditor Litigation

Legal proceedings initiated by a creditor to recover debts owed by a debtor, usually when other debt recovery methods have failed.

Security Interest

A legal claim or lien on assets or property, granted to secure the performance of an obligation or repayment of a debt.

Consumer Good

Goods produced and purchased for personal use, as opposed to those made for production or commercial use.