Free cash flow is:
A) without cost to the firm.
B) net income plus taxes.
C) an increase in net working capital.
D) cash that the firm is free to distribute to creditors and stockholders.
E) None of these.

Question

Quizplus · Accepted Answer

Free cash flow is the cash that the firm generates after accounting for capital expenditures needed to maintain or expand its asset base. This cash can be used to pay back creditors or distribute to stockholders through dividends or stock buybacks. Thus, option D is the correct answer. Option A is incorrect because free cash flow has already accounted for any costs incurred by the firm. Option B is incorrect because net income plus taxes do not account for changes in working capital and capital expenditures. Option C is incorrect because an increase in net working capital does not necessarily equate to free cash flow.

Free Cash Flow Is