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