Free Cash Flow (FCF) and Net Income (NI) Differ in the Following

question 1

Multiple Choice

Free cash flow (FCF) and net income (NI) differ in the following ways:
I. net income is the return to shareholders, calculated after interest expense; free cash flow is calculated before interest.
II. net income is calculated after various non-cash expenses, including depreciation; we add back depreciation when we calculate free cash flow.
III. capital expenditures and investments in working capital do not appear in net income calculations; they do reduce free cash flows.
IV. net income is never negative; free cash flows can be negative for rapidly growing firms, even if the firm is profitable, because investments exceed cash flows from operations.

• A) I only
• B) I and II only
• C) I, II and III only
• D) I, II, III and IV

Know the conditions under which a business combination occurs and the categorization of acquired assets or business operations.

Understand the differential treatment of tax for investments in subsidiaries and the adjustments to deferred tax assets and liabilities on consolidation.

Grasp the principles and implications of recognizing all assets acquired in a business combination at fair value.

Understand the principles of effective alarm signals and predator evasion strategies.

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Definitions:

Retrograde Amnesia

The inability to remember experiences or learned information from before an injury happened or a disease started.

Anterograde Amnesia

A condition characterized by the inability to form new memories following the onset of the disorder, while memories from before the event remain intact.

Retroactive Interference

A memory problem that occurs when newly learned information interferes with the recall of previously learned information.

Retrograde Amnesia

A loss of memory-access to events that occurred, or information that was learned, before an injury or the onset of a disease.