Which of the following best represents cash flows to investors?
A) Cash flow from operating activity, plus cash flow generated from net working capital
B) Earnings before interest and taxes times 1 minus the firm's tax rate
C) Net income minus dividends paid to preferred stockholders.
D) Cash flow from operating activity minus cash flow invested in net working capital minus cash flow invested in long-term assets.

Question

Quizplus · Accepted Answer

D is correct because it represents the free cash flow to the firm, which is the cash flow from operating activities minus the investments in net working capital and long-term assets. This is a measure of the cash flow that is available to all investors, including both debt and equity holders.

Which of the Following Best Represents Cash Flows to Investors