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In a few sentences: When we calculate a project or firm's free cash flow, should we...

In a few sentences: When we calculate a project or firm's free cash flow, should we subtract cash spent on necessary capital expenditures (CAPEX)? Why or why not?

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Expert Solution

To understand this we must understand what is firm's free cash flow (FCF). Free cash flow is the amount left after the company pays off all his operational expenditure and capital expenditure (CAPEX).

the formula of free cash flow is:

ree cash flow (FCF) = Operating Cash Flow − Capital Expenditures

so the answer is yes, we subtract cash spent on necessary capital expenditures (CAPEX) from free cash flow (FCF)

jeff jeffy answered 2 years ago
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