Chapter 16, Problem 16.24EX

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, acquisitions, payment of dividends, and repayment of debts.

The following formula is used to calculate free cash flow.

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

To Determine: The free cash flow for S Enterprises Incorporation.

b.

To determine

To Explain: The use of free cash flow by lender to determine whether or not to give a loan.