Series 79 practice questionmediumDCF Analysis
When constructing unlevered free cash flow for a DCF, which of the following should be subtracted from EBIT after taxes?
- APreferred dividends
- BCapital expenditures and changes in net working capital✓ Correct answer
- CInterest expense
- DShare repurchases
Explanation
Why B — Capital expenditures and changes in net working capital
Unlevered free cash flow subtracts capex and NWC changes from NOPAT (EBIT after taxes). Deducting interest or dividends would mix in capital structure effects, distorting the metric.
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