6. Free cash flow Aa Aa Accounting statements represent a company's earnings, but this is not the real cash that a company generates Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position Which of the following statements best describes free cash flow? O Residual cash flow after taking into account operating cash flows, including fixed-asset acquisitions, asset sales, and working-capital expenditures O Cash flows generated by operating the business Suppose you are the only owner of a chain of coffee shops near universities. Your current cafes are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance Financial update as of June 15 Your existing business generates $75,000 in EBIT * The corporate tax rate applicable to your business is 35% . The depreciation expense reported in the financial statements is $14,286 . You don't need to spend any money for new equipment in your existing cafes; however, you do need $11,250 of additional cash . You also need to purchase $6,000 in additional supplies-such as cloth tableclothes and napkins, and more formal tableware-on credit. It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750 Based on your evaluation you have in free cash flow Can a company have negative free cash flow? Yes O No 6. Free cash flow Aa Aa Accounting statements represent a company's earnings, but this is not the real cash that a company generates Earnings data can be manipulated and can be deceiving. Thus, corporate decision makers and security analysts focus on the free cash flow that a firm generates to analyze the company's real cash position Which of the following statements best describes free cash flow? O Residual cash flow after taking into account operating cash flows, including fixed-asset acquisitions, asset sales, and working-capital expenditures O Cash flows generated by operating the business Suppose you are the only owner of a chain of coffee shops near universities. Your current cafes are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financial performance Financial update as of June 15 Your existing business generates $75,000 in EBIT * The corporate tax rate applicable to your business is 35% . The depreciation expense reported in the financial statements is $14,286 . You don't need to spend any money for new equipment in your existing cafes; however, you do need $11,250 of additional cash . You also need to purchase $6,000 in additional supplies-such as cloth tableclothes and napkins, and more formal tableware-on credit. It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750 Based on your evaluation you have in free cash flow Can a company have negative free cash flow? Yes O No
