Question

A company reported $50,000 net cash provided by operating activities. It invested $1,000 in equipment and paid $1,000 in dividends. Its free cash flow was a) $44,000. b) $52,000. c) $48,000. d) $12,000.

Answer 1

The answer is c. $48,000

Explanation:

To find the free cash flow, we need to take into account the money that is entering the company and the money that is being used. Money that we are earning is possitive, and money being spend goes with a minus.

The net cash, the $50,000 is our sales column. And is money entering the company.

The Investment would be our CAPEX or directly we can use it as investment. And this money is being spended.

The dividends, are the payments that we are doing to the board of directors or the share holders. Since we are paying others, we know this money is being used.

The equation here is:

Sales - Investment - Dividends = Free Cash Flow

So it $50,000 - $1,000 - $1,000 = $48,000