Which of These Statements Related to Free Cash Flow Is

question 99

Multiple Choice

Which of these statements related to free cash flow is correct?

• A)free cash flow must be fully distributed to the firm's debtors and shareholders.
• B)free cash flow must be positive for a firm to acquire new fixed assets.
• C)all, or part, of free cash flow can be used to increase a firm's cash reserves.
• D)when capital expenditures are positive, free cash flow will exceed the cash flow from operations.

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Definitions:

Theoretical Capacity

The maximum output that an organization could achieve in ideal conditions with unlimited resources and optimal efficiency.

Practical Capacity

The maximum possible output a company can produce under realistic conditions, considering normal downtime and maintenance needs.

Denominator Volume

The amount of production or activity level used as a basis to allocate fixed costs in cost accounting, affecting the per-unit cost calculations.

Overhead Rate

A measure used to allocate overhead costs to products or services based on a predetermined formula.