Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position. Which of the following statements best describes free cash flow? O The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows O The amount of a firm's available cash used to write off capital expenditures and depreciation Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: • Your existing business generates $123,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $23,429. • You don't need to spend any money for new equipment in your existing cafés; however, you do need $18,450 of additional cash. • You also need to purchase $9,840 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit. • It is also estimated that your accruals, including taxes and wages payable, will increase by $6,150. Based on your evaluation you have Can a company have negative free cash flow? Yes Financial update as of June 15 O No in free cash flow.
Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position. Which of the following statements best describes free cash flow? O The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows O The amount of a firm's available cash used to write off capital expenditures and depreciation Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance: • Your existing business generates $123,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $23,429. • You don't need to spend any money for new equipment in your existing cafés; however, you do need $18,450 of additional cash. • You also need to purchase $9,840 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit. • It is also estimated that your accruals, including taxes and wages payable, will increase by $6,150. Based on your evaluation you have Can a company have negative free cash flow? Yes Financial update as of June 15 O No in free cash flow.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Accounting statements represent a company's earnings, but this is not the real cash that a company generates. Earnings data can be manipulated and
can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's
real cash position.
Which of the following statements best describes free cash flow?
The amount of a firm's available cash that can be used without harming operations or the ability to produce future cash flows
The amount of a firm's available cash used to write off capital expenditures and depreciation
Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a
fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you
with the following data on your current financial performance:
• Your existing business generates $123,000 in EBIT.
• The corporate tax rate applicable to your business is 25%.
• The depreciation expense reported in the financial statements is $23,429.
• You don't need to spend any money for new equipment in your existing cafés; however, you do need $18,450 of additional cash.
• You also need to purchase $9,840 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit.
• It is also estimated that your accruals, including taxes and wages payable, will increase by $6,150.
Based on your evaluation you have
Can a company have negative free cash flow?
O Yes
Financial update as of June 15
No
in free cash flow.
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