Chapter 16, Problem 16.8BPE

a.

To determine

Free cash flow:

Free cash flow is defined as an evaluation of financial performance of a company. It shows the cash which is generated after paying on capital expenditures. Such cash is used for production, expansion, development of new products, and acquisitions.

The following formula is used to calculate free cash flow.

$\text{Free cash flow = }\left(\begin{array}{l}\text{Net cash provided by operating activities}-\\ \text{Cash payments planned for investments }\\ \text{in long-term assets}\end{array}\right)$

To Determine: D’s free cash flow for both years.

b.

To determine

To Explain: Whether free cash flow has improved or declined from Year 1 to Year 2.