Financial update as of June 15 • Your existing business generates $111,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $21,143. • You don’t need to spend any money for new equipment in your existing cafés; however, you do need $16,650 of additional cash. • You also need to purchase $8,880 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 $5,550.   Based on your evaluation you have    in free cash flow.   Can a company have negative free cash flow? No   Ye

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
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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:
Financial update as of June 15
Your existing business generates $111,000 in EBIT.
The corporate tax rate applicable to your business is 25%.
The depreciation expense reported in the financial statements is $21,143.
You don’t need to spend any money for new equipment in your existing cafés; however, you do need $16,650 of additional cash.
You also need to purchase $8,880 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 $5,550.
 
Based on your evaluation you have    in free cash flow.
 
Can a company have negative free cash flow?
No
 
Yes
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