When Calculating a Firm's Free Cash Flow from Earnings Before

question 54

Multiple Choice

When calculating a firm's free cash flow from earnings before interest and taxes we must add back depreciation,amortization and depletion expense and allowances because

• A) they are non-cash expenditures.
• B) the accounting method for reporting such expenses may be different from that reported to the taxing authority.
• C) they approximate the value of fixed asset purchases during the year.
• D) they are unrelated to the amount of taxes paid during the year.

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Definitions:

Petty Cash Receipts

Documents that provide evidence of small, incidental purchases made using a company's petty cash funds.

Fund Replenishment

The process of adding money to a fund to return it to its initial level or to support continued use or operation.

Petty Cash Fund

A small amount of cash kept on hand for minor or unexpected expenses.

Replenish

To fill something up again, restoring its level or supply to a former state.