- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 24. Free Cash Flow Valuation
- Subject 2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFO
CFA Practice Question
When forming an estimate for free cash flow to the firm (FCFF) using cash flow from operations (CFO) as the starting point, an analyst needs to estimate the following items except for:
A. Non-cash expenses.
B. Interest expense.
C. Investment in fixed capital.
Explanation: FCFF = CFO + Interest expense(1 - tax rate) - investment in Fixed Capital
Depreciation expenses (or non cash expenses) have already been added back when cash flow from operations (CFO) was computed.
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