easy · 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 was added back to income and must be reversed to find the true 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 accounting gain recognized on the income statement from the firm's acquisition of the new fixed assets
4. It accounts for the interest expense tied to the debt financing arrangement used to fund the purchase of the new capital asset

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