Question

Nova Electrics anticipates cash flow from operating activities of $9 million in 20X1. It will need to spend $5.5 million on capital investments to remain competitive within the industry. Common stock dividends are projected at $.60 million and preferred stock dividends at $.20 million.

Answer 1

Step-by-step explanation:

The computation of the free cash flow is shown below:

Free cash flow = Cash flow from operating activities - capital expenditure - common stock dividend - preferred stock dividend

= $9 million - $5.5 million - $0.60 million - $0.20 million

= $2.70 million

The free cash flow represents the remaining cash flow left after paying the capital expenditure, operating expenses, etc

So, it would be used for special financing activities like leverage buyout