Sources of Cash Flows The Expando Company plans to invest approximately $500,000 each year for the next 3 years to expand its operations into a neighboring state. Net income for the last 3 years, most recent first, has been

$225,000, $223,000 and $224,000, respectively. Cash generated by operations for each of the last 3 years has been

$420,000, $410,000, and $398,000, respectively. Much of the difference between net income and cash flow from operations each year is due to depreciation expense.

a. Is it possible for Expando Company to fund its expansion from operating cash flows? What other uses may have to be made of the cash generated from operations? Will it help to increase depreciation? Explain.

b. Identify the alternative sources of cash that Expando should consider for its expansion.
. Expando’s management says that the expansion is needed because sales in the neighboring state have increased by $1,000,000 in the past 2 years. This, in turn, caused an increase in accounts receivable of $150,000 and inventory of $100,000. What effect has this had on cash generated by operations?