Nova Electrics anticipates cash flow from operating activities of $9 million in 20X1. It will need...
Nova Electrics anticipates cash flow from operating activities of $9 million in 20X1. It will need to spend $6.0 million on capital investments to remain competitive within the industry. Common stock dividends are projected at $1.20 million and preferred stock dividends at $.65 million.
a. What is the firm’s projected free cash flow for the year 20X1? (Enter your answer in millions of dollars rounded to 2 decimal places.)
b. What does the concept of free cash flow represent?
|
Free cash flow represents the funds that are available for special financing activities, such as a leveraged buyout. Free cash flow represents the funds that are available for investing activities, such as purchasing plant and equipment assets. Free cash flow equals cash flow from operating activities. |
Homework Answers
A.calculation of free cash flow
Cash flow from operating activities =$9 million
Less: capital spending =$6 million
Less: dividend payments = 1.20+0.65 =$1.85 million
Free cash flow =$1.15 million
B.
Free cash flow represents the funds that are available for special financing activities such as a leveraged buyout
It is calculated after purchasing capital assets
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Nova Electrics anticipates cash flow from operating activities
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