Whether having a negative operating cash flow is a good or a bad sign. Situation: A firm has negative operating cash flows for several years. Introduction: Cash flow refers to the difference between the money that comes in and goes out of the firm. Operating cash flow is the cash from operating activities or primary activities of the firm. A firm will have a negative operating cash flow when its operating costs are greater than the operating incomes.

Question

King’s Park, Trinidad is owned and operated by a private company,Windy Sports Ltd. You work as the Facilities Manager of the Park andthe CEO of the company has asked you to evaluate whether Windy shouldembark on the expansion of the facility given there are plans by theGovernment to host next cricket championship.The project seeks to increase the number of seats by building fournew box seating areas for VIPs and an additional 5,000 seats for thegeneral public. Each box seating area is expected to generate $400,000in incremental annual revenue, while each of the new seats for thegeneral public will generate $2,500 in incremental annual revenue.The incremental expenses associated with the new boxes and seatingwill amount to 60 percent of the revenues. These expenses includehiring additional personnel to handle concessions, ushering, andsecurity. The new construction will cost $15 million and will be fullydepreciated (to a value of zero dollars) on a straight-line basis overthe 5-year…

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Question

Chapter 2, Problem 7CRCT

Summary Introduction

To discuss: Whether having a negative operating cash flow is a good or a bad sign.

Situation: A firm has negative operating cash flows for several years.

Introduction:

Cash flow refers to the difference between the money that comes in and goes out of the firm. Operating cash flow is the cash from operating activities or primary activities of the firm. A firm will have a negative operating cash flow when its operating costs are greater than the operating incomes.

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