Which of the following items affect free cash flows to debt and equity holders? Which affect free

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Which of the following items affect free cash flows to debt and equity holders? Which affect free cash flows to equity alone? Explain why and how.

  • All answers assume a tax rate > 0.
  • An increase in accounts receivable
  • A decrease in gross margins
  • An increase in property, plant, equipment
  • An increase in inventory
  • Interest expense
  • An increase in prepaid expenses
  • An increase in notes payable to the bank


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