Question

McKnight plans to purchase a truck for $23,000 and a forklift for $119,000 next year In addition, it plans to pay cash dividends of $2, 500. Assuming McKnight plans similar activity for 2017, what would be the amount of free cash flow? McKnight Exercise Equipment, Inc. reported the following statement of cash flows for 2016: Cash Flows from Operating Activities: Net Income $119,000 Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities: Depreciation Expense $50,000 Increase in Accounts Receivable 4000 Decrease in Merchandise Inventory 8000 Increase in Accounts Payable 2000 Decrease in Salaries Payable 10000 55,000Net Cash Provided by (Used for) Operating Activities 174,000Cash Flows from Investing Activities: Cash Payment for Acquisition of Plant Assets 93,000 Cash Payment for Investments 18,000 Net Cash Provided by (Used for) Investing Activities 111,000Cash Flows from Financing Activities: Cash Payment of Dividends 67,000 Cash Payment of Notes Payable 5,000 Cash Receipt from Issuance of Common Stock 13,000 Net Cash Provided by (Used for) Financing Activities 59,000Net Increase (Decrease) in Cash 4,000Cash Balance, December 31, 2015 14,000Cash Balance, December 31, 2016 18,000

Answer 1

Free cash flow = $318,500

Step-by-step explanation:

The free cash flow = Net Cash Provided by (Used for) Operating Activities + Cash payment for planned long term assets + Cash payment for dividends

The free cash flow = $174,000 + $142,000 + $2,500

The free cash flow = $318,500

Workings:

Cash payment for planned long term assets = Purchase of truck + Purchase of forklift

= $23,000 + $119,000

= $142,000