Which of the following equations correctly defines Free Cash Flow?
A) EBIT × (1-tax rate) + CCA - Net Investment- Change in Working Capital
B) (Gross Profit - Depreciation) × (1-tax rate) - Net Investment - Change in Working Capital
C) (Gross Profit - Capital Cost Allowance) - Net Investment - Change in Working Capital
D) (Gross Profit - Depreciation) - Net Investment - Change in Working Capital

Question

Quizplus · Accepted Answer

Free Cash Flow (FCF) is calculated by taking the earnings before interest and taxes (EBIT), adjusting for taxes (by multiplying by 1 minus the tax rate), adding back depreciation or capital cost allowance (CCA), and then subtracting net investment and the change in working capital. This formula is accurately represented in option A.

Which of the Following Equations Correctly Defines Free Cash Flow