Free cash flow is flow cash from operations less cash used for
A) investments in PP&E needed to maintain current production
B) dividends and cash to redeem bonds payable
C) investments in PP&E needed to achieve desired future production
D) fixed assets needed to maintain productivity and cash to redeem bonds payable

Question

Quizplus · Accepted Answer

Free cash flow is calculated by subtracting capital expenditures from operating cash flow. Capital expenditures are investments in property, plant, and equipment (PP&E) needed to maintain or grow the business. Option A correctly identifies investments in PP&E needed to maintain current production, which is a capital expenditure that is subtracted from operating cash flow to calculate free cash flow. Options B, C, and D are all incorrect because they either include additional expenses that are not related to PP&E investments needed to maintain or grow the business, or they focus on investments in PP&E that are not necessary for maintaining current production.

Free Cash Flow Is Flow Cash from Operations Less Cash