Please answer the questions below: Question 10 Which statement is most likely to

Question

Please answer the questions below:

Question 10 Which statement is most likely to be true: Free cash flow must always be positive O Changes in working capital have no effect on free cash flow Changes in fixed asset purchases have no effect on free cash flow Free cash flow shows the amount of cash that can be paid out to bondholders and the shareholders for the year O Free cash flow is less meaningful then net income because net income indicates how much can be distributed to all investors of the firm

Explanation / Answer

Answer 10

D) Free Cash flow shows the amount of cash that can be paid out to bondholder and shareholders for the year

Note: Free cash flow means the net cash flow available for distribution to bondholder & shareholder

Answer 11

C) Usually , the stock price is greater than book value for highly profitable firm

Note: Eps is higher DPS, EBIT is higher than net income, EPS will increase if depreciation is lower

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