Which of the following is correct regarding the relationship between a firm's capital structure and its free cash flows (FCF)?
A)A firm's capital structure does affect its calculated free cash flows, because FCF reflects only dividend payments.
B)A firm's capital structure does not affect its calculated free cash flows, because FCF reflects only operating cash flows.
C)A firm's capital structure does not affect its calculated free cash flows, because FCF reflects only free cash flow to equity.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Free cash flows (FCF) are calculated by subtracting the capital expenditures from the operating cash flows. The capital structure of a firm (i.e., the mix of equity and debt financing used) does not directly impact its operating cash flows or its capital expenditures, and therefore does not impact its FCF.

Which of the Following Is Correct Regarding the Relationship Between