Accounting statements represent a company's earnings, but this is not the real cash Accounting statements represent a company's earnings, but this is not the real cahs that a company generates. Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position.

Which of the following statements best describes free cash flow?

The excess cash generated by revenues less all operating expenses

The cash flwo available for distribution to all investors after the company has mode all investment in fixed asssets and working capital necessary to sustain a firm's ongoing operations

Suppose tou are the only owner of a chain of fcoffee shops near universities. You current cafes are doing well, but you are interested in starting a fine-dining resaurant. You deccide to use the cash generated form you existing business to enter into a new business. Your accountant proviedes you with the following data on yoru current financial performance:

• Your existing business generates $135,000 in EBIT.

• The corporate tax rate applicable to your business is 35%

• The depreciation expense reported in the financial statements is $25,714.

• You don't need to spend any money for new equipment in your existing cafes; however, you do need $20,250 of additional cash.

• You also need to purchase $10,800 in additional supplies- such as cloth tableclothes and napkins, and more formal tableware-on credit.

It is also estimated that your accuals, including taxes and wages payable, eill increase by $6,750.

Based on your evaluation you have ------ in free cash flow.

Free cash flow can be used for various reasons, including distributing it to stock holders and debtholders. Which of the following is not a use of free cash flow?

Acquiring operating assets

Distributing dividends to stockholders