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 excess cash generated by revenues less all operating expenses Based on your evaluation you have (103,379,107,069,111,989,152,579)    in free cash flow.   Can a company have negative free cash flow? No   Yes The cash flow available for distribution to all investors after the company has made all investments in fixed assets and working capital necessary to sustain a firm’s ongoing operations     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 $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.

Principles of Accounting Volume 1
19th Edition
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax
Chapter16: Statement Of Cash Flows
Section: Chapter Questions
Problem 3TP: Consider the dilemma you might someday face if you are the chief financial officer of a company that...
icon
Related questions
Question
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 excess cash generated by revenues less all operating expenses
Based on your evaluation you have (103,379,107,069,111,989,152,579)    in free cash flow.
 
Can a company have negative free cash flow?
No
 
Yes
The cash flow available for distribution to all investors after the company has made all investments in fixed assets and working capital necessary to sustain a firm’s ongoing operations
 
 
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 $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.
 
 
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 3 images

Blurred answer
Knowledge Booster
Personal Financial Statements
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Principles of Accounting Volume 1
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Auditing: A Risk Based-Approach (MindTap Course L…
Auditing: A Risk Based-Approach (MindTap Course L…
Accounting
ISBN:
9781337619455
Author:
Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:
Cengage Learning
Financial Accounting Intro Concepts Meth/Uses
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:
9781285595047
Author:
Weil
Publisher:
Cengage
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning