Garfunkel Inc. reported the following on the company’s statement of cash flows in Year 2 and Year 1:

Eighty percent of the net cash flows used for investing activities was used to replace existing capacity.

a. Determine Garfunkel’s free cash flow for both years.

b. Has Garfunkel’s free cash flow improved or declined from Year 1 to Year 2?

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Year 2 Year 1 Net cash flows from operating activities Net cash flows used for investing activities $623,000 $596,000 (559,000) (495,000) Net cash flows used for financing activities (55,000) (77,000)