Question

Pro forma free cash flows for a proposed project should___________.I. exclude the cost of employing existing assets that could be sold anyway.
II. exclude interest expense.
III. include the depreciation tax shield related to the project.
IV. exclude any required increase in operating current assets.

Answer 1

Answer:II. exclude interest expense.

III. include the depreciation tax shield related to the project.

Explanation: pro forma free cash flow is a term used to estimate the amount of inflows(revenue/income) or outflows (expenses) expected to be made in future projects and engagements of a business entity. It helps the business to plan appropriately to forestall any eventualities.

Pro forma free cash flows should exclude interest rate in its estimation and it should also include the depreciation tax shield related to the project.