Compute the company’s free cash flow to equity using the residual income model
Transcribed Image Text:Caleulating Free Cash Flow. Below are data from the financial statements of Berkshire Audio.
Net income..
Common stock issued (net)
Cash from operations (net).
Cash from investing (net).
Change in debt (net)...
Dividends paid
Change in operating cash (net)
Change in common equity (net).
$2,500.00
500.00
3,125.00
(1,000.00)
(1,187.50)
1,000.00
437.50
2,000.00
Compute the company's free cash flow to equity using three different methods. (Each method should yield
the same answer.)
Definition Definition Cash that is left over after a company has paid for its operating and capital expenses. Unlike net income or earnings, free cash flow excludes non-cash expenses of the income statement and includes the expenditures on equipment and assets. Free cash flow also helps potential shareholders to evaluate how quickly the company can pay interest and dividends.
Expert Solution
Step 1
Free cash flow:
This is the cash available with the company or the cash flows generated by the company after supporting the operations and maintenance of its capital assets. This is a profitability measurement that does not consider non-cash expenses and considers cash expended on capital assets and working capital changes.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
