Auto Supply Companys 2011 statement of cash flows appears in Exhibit 138. Study the statement and respond to the following questions: a. What was the

Auto Supply Company’s 2011 statement of cash flows appears in Exhibit 13–8. Study the statement and respond to the following questions:

a. What was the company’s free cash flow in 2011?

b. What were the major sources and uses of cash from financing activities during 2011? Did the net effect of financing activities result in an increase or a decrease in cash during the year?

c. What happened to the total amount of cash and cash equivalents during the year? Assuming 2011 was a typical year, is the firm in a position to continue its dividend payments in the future? Explain.

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Exhibit 13-8 AUTO SUPPLY CO. STATEMENT OF CASH FLOWS AUTO SUPPLY CO. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2011 Cash flows from operating activities $ 250,000 60,000 5,000 10,000 S 325,000 Net income Add: Depreciation expense Decrease in inventory Increase in accounts payable Subtotal Less: Increase in accounts receivable Decrease in accrued expenses payable Gain on sales of marketable securities $10,000 15,000 20,000 45,000 $ 280,000 Net cash provided by operating activities Cash flows from investing activities Proceeds from sales of marketable securities $ 35,000 Cash paid to acquire plant assets (see supplementary schedule below) Net cash provided by investing activities Cash flows from financing activities (30,000) 5,000 Dividends paid. $(140,000) (150,000) Payments to retire bonds payable Net cash used for financing activities Net decrease in cash Cash and cash equivalents, Jan. 1, 2011 Cash and cash equivalents, Dec. 31, 2011 (290,000) S (5,000) 50,000 S 45,000 Supplementary Schedule: Noncash Investing and Financing Activities Purchases of plant assets Less: Portion financed through issuance of $ 100,000 long-term debt Cash paid to acquire plant assets 70,000 S 30,000