Free cash flow is the cash flow available after subtracting out necessary investment in long term assets and net working capital. Place a next to the one statement that BEST describes why interest expense is not subtracted out in calculating free cash flow.

Free cash flow is cash flow available to all investors, including debtholders.

Interest expense is not an actual cash flow.

Interest expense is not an incremental cash flow.

Interest expense is a sunk cost.

This statement is incorrect. Interest is subtracted out in calculating net operating profit after taxes (NOPAT), and thus free cash flow.