Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 12 - Statement of Cash Flows - Brief Exercises: BE12-12

Answer

Computation of company's free cash flows: Formula for free cash flows is as below: Cash provided by operations activities is 734,000 dollars Capital expenditure is 280,000 dollars Cash dividends are 90,000 dollars By substituting these values in the free cash flows formula: Free cash flows = 734,000 dollars - 280,000 dollars - 90,000 dollars = 364,000 dollars.

Work Step by Step

Formula for free cash flows is as below: Free cash flows = Cash provided by operations-Capital expenditure-Cash dividends Since, there is sufficient free cash flow available, the company may choose to increase the dividend distribution. However, in case the company has plans to repay some debts shortly or to purchase some capital assets, in near future, than this free cash can be parked for some time.
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