Series 79 practice questionmediumDCF - Working Capital Adjustments
In calculating free cash flow for a DCF, if net working capital increases by $5 million, how does this affect free cash flow?
- AIncreases by $5 million
- BDecreases by $5 million✓ Correct answer
- CNo effect
- DDepends on depreciation
Explanation
Why B — Decreases by $5 million
An increase in net working capital represents a use of cash, reducing free cash flow. It is not dependent on depreciation, which is a separate adjustment.
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