Q10SE - Horngren'S Financial And Managerial Accounting

Question

Julie Lopez Company expects the following for 2018:

1. Net cash provided by operating activities of \(148,000.
2. Net cash provided by financing activities of \)56,000.
3. Net cash used for investing activities of \(77,000 (no sales of long-term assets).
4. Cash dividends paid to stockholders of \)7,000.

How much free cash flow does Lopez expect for 2018?

Step-by-Step Solution

Answer

Free cash flow equals $64,000.

Step 1- Explanation and Definition

Free cash flow is the excess of available cash generated by operating activities after the settlement planned investments in long-term assets cash dividends.

Step 2- Calculation of Free Cash Flow

$\begin{array}{c}\mathrm{Free} \mathrm{cash} \mathrm{flow}=\mathrm{Net} \mathrm{cash} \mathrm{provided} \mathrm{by} \mathrm{operating} \mathrm{activities}\\ -\mathbf{Cash}\mathbf{ }\mathbf{payments}\mathbf{ }\mathbf{planned}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{investments}\mathbf{ }\mathbf{in}\mathbf{ }\mathbf{long}\mathbf{term}\mathbf{ }\mathbf{assets}\\ -\mathbf{Cash}\mathbf{ }\mathbf{dividends}\\ \mathbf{=}\mathbf{\$}\mathbf{148}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{77}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{000}\\ =\$64,000\end{array}$