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      Question

      Which of the following reduces free cash flow to firm

      (FCFF)?
      A Depreciation charged (non-cash) Correct Answer Incorrect Answer
      B Increase in working capital (higher receivables) Correct Answer Incorrect Answer
      C Reduction in capital expenditure Correct Answer Incorrect Answer
      D Decrease in taxes paid Correct Answer Incorrect Answer

      Solution

      An increase in working capital (e.g., higher receivables or inventory) represents cash being tied up in operations, which reduces Free Cash Flow to the Firm (FCFF). Depreciation is added back as it is non-cash.

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