Series 79 practice questioneasyDCF Analysis
When constructing a DCF model, which of the following items should generally be excluded from the calculation of unlevered free cash flow?
- ADepreciation and amortization
- BInterest expense✓ Correct answer
- CCapital expenditures
- DChange in net working capital
Explanation
Why B — Interest expense
Unlevered free cash flow excludes interest expense because it is calculated before the impact of capital structure. Including interest expense would distort the firm's operating cash generation, which is a common trap for beginners.
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