Which of the following statements is correct?

A. Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.

B. After-tax operating income is calculated as EBIT (1-T) + Depreciation.

C. Two firms with identical sales and operating costs but with different amounts of debt will have different operating incomes by definition.

D. If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.

E. Retained earnings as reported on the balance sheet represent cash and, therefore, are available to distribute to stockholders as dividends or any other required cash payments to creditors and suppliers.

Question

Business

Yuliana Simpson

30 June, 09:06

Which of the following statements is correct?

A. Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.

B. After-tax operating income is calculated as EBIT (1-T) + Depreciation.

C. Two firms with identical sales and operating costs but with different amounts of debt will have different operating incomes by definition.

D. If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.

E. Retained earnings as reported on the balance sheet represent cash and, therefore, are available to distribute to stockholders as dividends or any other required cash payments to creditors and suppliers.

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Answers (1)

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Annalise Morrow · Answer 1

Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations. (A)

Explanation:

Option A - This statement is true.

Option B - This is false. After-tax operating Income is calculated as Operating profit less interest less Depreciation and less tax

Option C-This is false. They will have the same operating incomes. Operating income is calculated as Sales less operating cost.

Option D - False.

Option E - False.