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.
