Final answer:
To calculate a firm's free cash flow, changes in common stock are excluded as this pertains to financing activities. items like depreciation changes in working capital, and capital expenditures are typically included whereas financing items are not considered in the FCF calculation.
Step-by-step explanation:
When calculating a firm's free cash flow (FCF), certain items are included and others are excluded. Free cash flow represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. The item excluded from the calculation of FCF from the options provided is changes in common stock.
Typically, the calculation of FCF includes net income, adjustments for non-cash expenses (like depreciation expense), changes in working capital, and capital expenditures (reflected in changes in gross fixed assets). It's important to note that while interest payments can affect the tax calculation influencing FCF, they are not directly excluded from the FCF calculation. However, changes in common stock relate to financing activities, which are not considered in free cash flow calculations, as FCF focuses on operational efficiency and capital expenditure. therefore, the answer to your question is c) changes in common stock.