CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

In calculating total cash flow to a firm, which of the following is not included?

A. Cash dividends
B. Operating cash flow
C. Additions to net working capital
D. Capital spending
Correct Answer: A

User Contributed Comments 15

User Comment
kalps Dividends are not included as part of the cash flows as they are included as part of cost of capital - financing
melissatt Total CF to the firm ... does this mean that they are only talking about CFO ?
wroger Cash dividends should be included when calculating TOTAL cash flow to the firm though..
wink44 Unless the project is investing X dollars in a company right? Then the dividend acquisition is part of the project.
smillis Pay dividends CFF
Receive dividends CFO

Either way isn't Total CF include both?

What am I missing??
Rotigga This is for calculating Total Cash Flow for Capital Budgeting purposes.
NavdeepS This is capital budgeting cash flow , not the same as accounting cash flow. Dividends are already included in computing the required rate of return and hence need not be added again
aravinda I don't think there is any differentiation as to FSA question VS Capital Budgeting question....

Free cashflow to the firm (FCFF) = CFO - Expenses - Taxes - Changes in net working capital - Changes in investments

I think Answer 'A' is correct.
peteypete Dividends are not part of a project. When Caterpillar works on a proejct to open a new plant does the cost of the companies dividend have anything to do with the new plant being opened? No. "A" is correct.
cnk1224 I agree A is correct as this question comes from the equation below

CFFA = OCF - NCS - change in NWC

CFFA - total cash flow of firm
NCS - Net Cap Spend
NWC - Change in Net Work Capital
sapu This is cash flow to the firm and not to equity.
gill15 Seriously. Step up guys. Just read the first sentence of the Chapter of "Capital Budgeting" : process of planned expenditures on ASSETS(Fixed Assets)
Shaan23 agree with gill. Dividends has nothing to do with fixed assets
Fabulous1 Total Cashflow to the Firm still includes all payments to both equity and debt. Hence Cash Dividends are included in Total Cashflow to the Firm. The answer of Analyst Notes is wrong.
Fabulous1 Disregard my previous comment.
As the question is about the calculation and not the components of FCFF, Cash dividends are not yet factored in.
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