Year-end Sale % OFF 
Abstract
In the standard construction of the free cash flow (FCF) in the M & M world without taxes, it is assumed that ALL of the generated cash flow is distributed to the debt holder and the equity holder, and there are no surplus funds that are invested in short-term marketable securities. Under these conditions, the FCF is equal to the capital cash flow (CCF), which in turn is equal to the sum of the cash flow to equity (CFE) and the cash flow to debt (CFD). However, the firm may have surplus funds that are not returned to the equity holder and these surplus funds are invested in short-term marketable securities. The availability of surplus funds that are invested in short-term marketable securities creates an ambiguity in the correct interpretation of the FCF.
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