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Basic Question 7 of 7
In calculating total cash flow to a firm, which of the following is not included?
B. Operating cash flow
C. Additions to net working capital
D. Capital spending
A. Cash dividends
B. Operating cash flow
C. Additions to net working capital
D. Capital spending
User Contributed Comments 15
| User | Comment |
|---|---|
| kalps | Dividends are not included as part of the cash flows as they are included as part of cost of capital - financing |
| melissatt | Total CF to the firm ... does this mean that they are only talking about CFO ? |
| wroger | Cash dividends should be included when calculating TOTAL cash flow to the firm though.. |
| wink44 | Unless the project is investing X dollars in a company right? Then the dividend acquisition is part of the project. |
| smillis | Pay dividends CFF Receive dividends CFO Either way isn't Total CF include both? What am I missing?? |
| Rotigga | This is for calculating Total Cash Flow for Capital Budgeting purposes. |
| NavdeepS | This is capital budgeting cash flow , not the same as accounting cash flow. Dividends are already included in computing the required rate of return and hence need not be added again |
| aravinda | I don't think there is any differentiation as to FSA question VS Capital Budgeting question.... Free cashflow to the firm (FCFF) = CFO - Expenses - Taxes - Changes in net working capital - Changes in investments I think Answer 'A' is correct. |
| peteypete | Dividends are not part of a project. When Caterpillar works on a proejct to open a new plant does the cost of the companies dividend have anything to do with the new plant being opened? No. "A" is correct. |
| cnk1224 | I agree A is correct as this question comes from the equation below CFFA = OCF - NCS - change in NWC CFFA - total cash flow of firm NCS - Net Cap Spend NWC - Change in Net Work Capital |
| sapu | This is cash flow to the firm and not to equity. |
| gill15 | Seriously. Step up guys. Just read the first sentence of the Chapter of "Capital Budgeting" : process of planned expenditures on ASSETS(Fixed Assets) |
| Shaan23 | agree with gill. Dividends has nothing to do with fixed assets |
| Fabulous1 | Total Cashflow to the Firm still includes all payments to both equity and debt. Hence Cash Dividends are included in Total Cashflow to the Firm. The answer of Analyst Notes is wrong. |
| Fabulous1 | Disregard my previous comment. As the question is about the calculation and not the components of FCFF, Cash dividends are not yet factored in. |
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Learning Outcome Statements
calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios
CFA® 2024 Level I Curriculum, Volume 2, Module 5.