I need help on this problem. Pearce Enterprises reported the following information for the past year of operation:TransactionFree Cash Flow$250,000Operating-cash-flow-to-current-liabilities raition1.0 timesOperating-cash-flow-to-capital-expenditures ratio3.0 timesa) Recorded credit sales of $9,000   b) Collected $4,000owed from customers   c) Purchased $28,000 of equipment on long-term credit   d) Purchased $16,000 of equipment for cash   e) Paid $10,000 of wages with cash   f) Recorded utility bill of $1,750 that has not been paid   For each transaction, indicate whether the ratio will (I) Increase, (D) decrease, or (N) have no effect.

Asked Sep 14, 2019

I need help on this problem.


Pearce Enterprises reported the following information for the past year of operation:


Free Cash Flow


Operating-cash-flow-to-current-liabilities raition

1.0 times

Operating-cash-flow-to-capital-expenditures ratio

3.0 times

a) Recorded credit sales of $9,000

b) Collected $4,000owed from customers      
c) Purchased $28,000 of equipment on long-term credit      
d) Purchased $16,000 of equipment for cash      
e) Paid $10,000 of wages with cash      
f) Recorded utility bill of $1,750 that has not been paid      

For each transaction, indicate whether the ratio will (I) Increase, (D) decrease, or (N) have no effect.


Expert Answer

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Step 1

Free Cash Flow = Cash from operations – Capital Expenditure

                            = Net Income + Non-cash Exp -...

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