a. discounting a forecast of the firm’s expected free cash flow for the nonequity components
b. adding the value of core operations and subtracting the value of debt and other capital claims
c. direct observation of market values or estimating fair values in other ways
d. adding the value of debt and other capital claims minus the value of core operations
a. GAAP requires the use of accrual accounting
b. these ratios include the effects of transactions that are not related to core operations
c. these ratios do not include the effects of transactions related to core operations
d. GAAP separates free cash flows from other cash flows
a. because GAAP categorizes cash flows in a different way than does the free cash flow statement
b. because the net cash flow from the GAAP cash flow statement is different than the net cash flow from the free cash flow statement
c. GAAP does not report in the income statement or statement of cash flows certain noncash transactions that are included in the free cash flow statement
d. Answers a and c are both correct.
a. all relate to the firm’s core operations, so these items are classified as part of free cash flow
b. may not be identical to the items as presented on a GAAP financial statement
c. are considered free cash flow equivalents
d. must be presented using the GAAP standard of cash-basis accounting
a. the capital expenditure will be understated by the amount that the machine was paid for with debt
b. the cash balance from core operations will be understated and the analyst would have an erroneous forecast
c. the addback for depreciation expense will be unaffected
d. the income tax expense will be unaffected