Unlevered free cash flow represents money available to which group?

• A. All investors
• B. Equity holders
• C. Debt holders
• D. Management

Answer: (A)

Unlevered free cash flow is the cash generated by the firm’s operations after taxes and reinvestment needs, but before any interest or debt payments. Because it strips out financing effects, it belongs to all providers of capital—the debt and equity holders together. In other words, it’s the cash available to the entire investor base, not just one group. This is why it’s used as the cash flow to the firm (FCFF) in valuations with the firm’s overall cost of capital. For contrast, cash flow to equity would be after debt payments and go to shareholders, while cash flow to debt holders would be those payments to lenders.