Free cash flow is cash from operations less cash used for
A) investments in PP&E needed to maintain current operations
B) dividends and cash to redeem bonds payable
C) investments in PP&E needed to achieve desired future operations
D) fixed assets needed to maintain current operations and cash to redeem bonds payable

Question

Quizplus · Accepted Answer

Free cash flow is calculated by subtracting the capital expenditures necessary to maintain current operations from the cash generated from operating activities. Dividends and cash to redeem bonds payable are not included in the calculation. Option C is incorrect because it refers to investments in PP&E needed to achieve desired future operations, which are considered capital expenditures and not necessary to maintain current operations. Option D is incorrect because it includes cash to redeem bonds payable, which is not included in the calculation of free cash flow.

Free Cash Flow Is Cash from Operations Less Cash Used