A firm may use its free cash flow to the firm (FCFF) to 0 a. Pay interests to the debtholders 0 b. Pay tax expenses 0 c Build a war chest for MBA 0 d. A and C only 0 e A B and C
Question
A firm may use its free cash flow to the firm (FCFF) to 0 a. Pay interests to the debtholders 0 b. Pay tax expenses 0 c Build a war chest for MBA 0 d. A and C only 0 e A B and C
Solution
Free Cash Flow to the Firm (FCFF) is a measure of a company's ability to generate cash flow that is available to all the firm's claim holders, including equity holders, debt holders, preferred stock holders, and convertible security holders.
Let's go through each statement:
a. Pay interests to the debtholders - This is correct. FCFF is available to all claim holders, including debt holders. Therefore, it can be used to pay interest to debt holders.
b. Pay tax expenses - This is not correct. FCFF is calculated after tax. Therefore, it does not include cash available for tax payments.
c. Build a war chest for M&A - This is correct. FCFF can be used for various corporate purposes, including mergers and acquisitions (M&A).
So, the correct answer is:
d. A and C only
FCFF can be used to pay interest to debt holders and for mergers and acquisitions, but not for tax payments.
Similar Questions
Which of the following about free cash flow to the firm (FCFM) is correct? (0.5 mark) A. FCFM represents the cash paid to debtholders and shareholders B. FCFM represents the cash paid to debtholders C. Interest tax shield should be deducted in calculating FCFM D. Net borrowings should be added in calculating FCFM
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