3-5 3-6 (3-7 Financial statements are based on generally accepted accounting principles (GAAP) and are audited by CPA firms. Therefore, do investors need to worry about the validity of those statements? Explain your answer. What is free cash flow? If you were an investor, why might you be more interested in free cash flow than net income? Would it be possible for a company to report negative free cash flow and still be highly val- ued by investors; that is, could a negative free cash flow ever be a good thing in the eves of investors? Explain your answer. What is meant by the following statement: Our tax rates are progressive. What does double taxation of corporate income mean? Could income ever be subject to triple taxation? Explain your answer. How does the deductibility of interest and dividends by the paying corporation affect the choice of financing (that is, the use of debt versus equity)? 3-8 3-10