Analyze a statement of cash flows. (LO 5, 6, 7)

Use the statement of cash flows for the Matlock Company to answer the required questions.

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a. How did Matlock Company use the majority of its cash during 2007?

b. What information does this give you about Matlock Company?

c. What was Matlock Company's major source of cash during 2007?

d. Is this an appropriate source of cash for the long run? Explain.

e. Calculate Matlock's free cash flow for 2007.

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(in thousands) Matlock Company Statement of Cash Flows For the Year Ended December 31, 2007 Cash flows from operating activities: Net income $1,500 Depreciation expense $ 210 Decrease in accounts receivable 320 Increase in inventory (70) Increase in prepaid rent (10) Increase in accounts payable Net cash provided by operating activities 150 600 $2,100 Cash flows from investing activities: Purchase of equipment Proceeds from sale of old equipment Net cash used by investing activities Cash flows from financing activities: Repayment of long-term mortgage Proceeds from sale of common stock Payment of cash dividends $(1,000) 200 (800) $(1,350) 500 (200)