Which of the Following Statements Is CORRECT

question 72

Multiple Choice

Which of the following statements is CORRECT?

• A) Net cash flow (NCF) is defined as follows: NCF= Net income - Depreciation and Amortization.
• B) Changes in working capital have no effect on free cash flow.
• C) Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T) + Depreciation and Amortization - Capital expenditures required to sustain operations - Required changes in net operating working capital.
• D) Free cash flow (FCF) is defined as follows: FCF = EBIT(1 - T) + Depreciation and Amortization + Capital expenditures.
• E) Net cash flow is the same as free cash flow (FCF).

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Definitions:

PVGO

Present Value of Growth Opportunities; the portion of a company's stock price that is attributed to its expected earnings growth.

Free Cash Flow

The amount of cash generated by a company after accounting for capital expenditures, necessary to maintain or expand the asset base.

WACC

The weighted average cost of capital, a measure of a firm's cost of capital in which each category of capital is proportionately weighted.

Firm Value

The total value of a company, measured by its market capitalization plus debts, minority interest, and preferred shares, minus total cash and cash equivalents.