# The financial statements for Nike, Inc., are provided in Appendix C at the end of the text. a. Determine the free cash flow for the most recent fiscal year. Assume that 90% of the additions to property, plant, and equipment were used to maintain productive capacity. Round to the nearest thousand dollars. b. How might a lender use free cash flow to determine whether or not to give Nike, Inc., a loan? c. Would you feel comfortable giving Nike a loan, based on the free cash flow calculated in (a)?

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 25E
Textbook Problem
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## The financial statements for Nike, Inc., are provided in Appendix C at the end of the text.        a.            Determine the free cash flow for the most recent fiscal year. Assume that 90% of the additions to property, plant, and equipment were used to maintain productive capacity. Round to the nearest thousand dollars.       b.            How might a lender use free cash flow to determine whether or not to give Nike, Inc., a loan?        c.            Would you feel comfortable giving Nike a loan, based on the free cash flow calculated in (a)?

a.

To determine

Determine the free cash flow for the recent fiscal year.

### Explanation of Solution

Free cash flow is the balance of cash from operating activities. This balance remains after the payment of “long-term assets, dividends, and repayment of debts to creditors”.

It signifies the amount of cash which leftover in the business after meeting the above expenditures in acquisition and expansion of business.

Working note: Calculate the amount of cash paid for maintaining property, plant and equipment:

Cash paid for maintainingproperty, plant and equipment

b.

To determine

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

To determine

Determine whether N Incorporation gives a loan based on the free cash flow.

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