Which of the Following Equations Correctly Defines Free Cash Flow

question 19

Multiple Choice

Which of the following equations correctly defines Free Cash Flow?

• A) EBIT × (1-tax rate) + CCA - Net Investment- Change in Working Capital
• B) (Gross Profit - Depreciation) × (1-tax rate) - Net Investment - Change in Working Capital
• C) (Gross Profit - Capital Cost Allowance) - Net Investment - Change in Working Capital
• D) (Gross Profit - Depreciation) - Net Investment - Change in Working Capital

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Definitions:

Sales

The total revenue generated from goods or services sold by a company during a specific period, indicating the primary source of business income.

Cost Of Goods Sold

Direct spending on materials and labor required to produce the merchandise a company sells.

Operating Expenses

The costs associated with the day-to-day activities of a business, excluding costs directly tied to the production of goods or services, such as rent, utilities, and salaries.

Merchandising Company

A business that purchases finished goods for resale in order to earn a profit, without transforming these goods.