Which of the following statements is FALSE? A. Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. B. The more cash a firm uses to repurchase shares, the less it has available to pay dividends. C. We can interpret the enterprise value of a firm as the net cost of acquiring the firm's equity, taking its cash, and paying off all debts. D. We estimate a firm's current enterprise value by computing the present value (PV) of the firm's free cash flow.

Question

Business

Jovanny Rollins

17 March, 09:27

Which of the following statements is FALSE? A. Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. B. The more cash a firm uses to repurchase shares, the less it has available to pay dividends. C. We can interpret the enterprise value of a firm as the net cost of acquiring the firm's equity, taking its cash, and paying off all debts. D. We estimate a firm's current enterprise value by computing the present value (PV) of the firm's free cash flow.

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Reina Wolfe · Answer 1

A. Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. This statement is FALSE

Explanation:

Free cash flow is the cash flow available to all the investors in a company and these could be common stockholders, preferred shareholders, and lenders. As such, this is cash-flow that is left after the company has covered all operating expenses (excluding non-cash items), and CAPEX. As such, using this measure, it is possible to evaluate a company performance irrespective of the capital structure that is adopted.