Sweeter Enterprises Inc. has net cash flows from operating activities of $440,000. Cash flows used for investments in property, plant, and equipment totaled $101,000, of which 65% of this investment was used to replace existing capacity.

a. Determine the free cash flow for Sweeter Enterprises Inc.

How might a lender use free cash flow to determine whether or not to give Sweeter Enterprises Inc. a loan? Free cash flow is often used to measure the financial strength of a business. The

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free cash flow that a business has, the easier it will be for the company to pay the interest on the loan and repay the loan principal. Sweeter's free cash flow is $