Series 79 practice questionmediumDCF Analysis
When constructing an unlevered free cash flow forecast, which of the following is typically subtracted from EBIT after tax?
- AInterest expense
- BDividends paid
- CChanges in net working capital✓ Correct answer
- DPrincipal debt repayments
Explanation
Why C — Changes in net working capital
Changes in net working capital are subtracted to reflect cash tied up in operations. Subtracting interest expense or debt payments would make it levered cash flow, which is a common error for candidates.
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