Q26P - Horngren'S Financial And Managerial Accounting

Question

Use the Rouse Exercise Equipment data in Exercises E14-23 and E14-24. Rouse plansto purchase a truck for \(23,000 and a forklift for \)125,000 next year. In addition, itplans to pay cash dividends of $3,500. Assuming Rouse plans similar activity for 2019,what would be the amount of free cash flow?

Step-by-Step Solution

Answer

The free cash flow amount of the company is $12,000.

Step 1: Free Cash Flow

Free cash flow means the cash produced by the company after considering and studying the cash outflows for running its business operations and keeping up its capital assets.

Step 2: Calculation of free cash flows

$\begin{array}{c}\mathrm{Freecashflow}=\mathrm{Cashflowfromoperatingactivity}-\mathrm{Capitalexpenditure}\\ \mathbf{=}\mathbf{\$}\mathbf{160}\mathbf{,}\mathbf{000}\mathbf{-}\left(\$23,000+\$125,000\right)\\ =\$12,000\end{array}$