Question

Which of the following statements is​ FALSE? A. Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. B. The more cash a firm uses to repurchase​ shares, the less it has available to pay dividends. C. We can interpret the enterprise value of a firm as the net cost of acquiring the​ firm's equity, taking its​ cash, and paying off all debts. D. We estimate a​ firm's current enterprise value by computing the present value​ (PV) of the​ firm's free cash flow.

Answer 1

Answer:

A. Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. This statement is FALSE

Explanation:

Free cash flow is the cash flow available to all the investors in a company and these could be common stockholders, preferred shareholders, and lenders. As such, this is cash-flow that is left after the company has covered all operating expenses (excluding non-cash items), and CAPEX. As such, using this measure, it is possible to evaluate a company performance irrespective of the capital structure that is adopted.