Net investment in operating capital is subtracted from net operating profit after taxes to calculate___________?
Correct answer: B. Free cash flow
- A. Relevant inflows
- B. Free cash flow
- C. Relevant outflows
- D. Cash outlay
Explanation
Free cash flow is the cash generated by operations after taxes and after the investment needed to maintain or expand operating capital. Thus, net operating profit after taxes minus net investment in operating capital gives free cash flow.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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