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

question 82

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:

Willingness To Pay

The maximum amount a consumer is prepared to spend to acquire a good or service.

Acceptable Price

The price at which consumers feel they are getting good value for the products or services purchased.

Allocative Efficiency

A state of resource distribution where it is impossible to make any one individual better off without making someone else worse off, maximizing social welfare.

Willingness To Pay

This refers to the maximum amount an individual is ready to pay for a good or service, reflecting the value they assign to it.