Koebel's Family Bakery Ltd. has been providing cupcakes to Coff ee Beans Ltd., a private company, on

Question:

Koebel's Family Bakery Ltd. has been providing cupcakes to Coff ee Beans Ltd., a private company, on a weekly basis over the last two years. Coff ee Beans, thrilled with the quality of goods and service it is receiving from Koebel's, has approached the Koebels to join its team. Coff ee Beans is expanding and hopes that the Koebels would consider the sale of Koebel's Family Bakery Ltd. shares to Coff ee Beans. In exchange, Janet, Brian, and Natalie would then become both shareholders and employees of Coff ee Beans Ltd.
Janet, Brian, and Natalie have worked hard to achieve the success that Koebel's Family Bakery has achieved. They are reluctant to join another team unless they can be reasonably assured that there will be future growth in the business they are investing in.
Selected information for Koebel's Family Bakery and Coff ee Beans follows:

Instructions
(a) Calculate the net increase in cash and the amount of cash at the beginning of the year that would have been included on the of cash flow statement for each company.
(b) Calculate free cash flow for each company.
(c) Compare the provision and use of cash in each of the three activities-operating, investing, and financing-by each company.
(d) Based on information provided in parts (a) and (b), identify why Coffee Beans is pursuing an investment in Koebel's Family Bakery Ltd.
(e) Based on information provided in parts (a) and (b), identify for the Koebels some of the issues they should consider and additional information they would require before making the decision to sell their shares and/or be employed by Coffee Beans Ltd.

Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...