medium · Principles of Finance financial-statements-markets-wc

In the calculation of Free Cash Flow to the Firm (FCFF), why is capital expenditure (CapEx) subtracted from NOPAT (Net Operating Profit After Taxes) plus Depreciation?

1. It is a non-cash charge that must be reversed to find the actual cash position
2. It represents cash that must be reinvested to maintain or grow the asset base and is not available for distribution
3. It offsets the gain recognized on the income statement from the acquisition of new assets
4. It accounts for the interest expense associated with financing the asset purchase

Sign up free to see the explanation and track your rank →