Question

Apex Company prepared the statement of cash flows for the current year that is shown below:

Apex Company Statement of Cash Flows—Indirect Method
Operating activities:
Net income				$	40,600
Adjustments to convert net income to cash basis:
Depreciation	$	20,500
Increase in accounts receivable		(60,100	)
Increase in inventory		(26,300	)
Decrease in prepaid expenses		9,700
Increase in accounts payable		54,200
Decrease in accrued liabilities		(11,600	)
Increase in income taxes payable		3,500			(10,100	)
Net cash provided by (used in) operating activities					30,500
Investing activities:
Proceeds from the sale of equipment		15,100
Loan to Thomas Company		(41,600	)
Additions to plant and equipment		(120,700	)
Net cash provided by (used in) investing activities					(147,200	)
Financing activities:
Increase in bonds payable		88,800
Increase in common stock		39,100
Cash dividends		(28,700	)
Net cash provided by (used in) financing activities					99,200
Net decrease in cash and cash equivalents					(17,500	)
Beginning cash and cash equivalents					27,600
Ending cash and cash equivalents				$	10,100

Required:

Compute Apex Company’s free cash flow for the current year. (Negative amount should be indicated by a minus sign

Answer 1

Company's Free Cash Flows is equivalent to the Net Income excluding non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital.

Hence in the current example, the Free Cash flows can be calculated as follows:-

Cash Flow from Operating activities + Proceeds from the sale of Equipment - Additions to Plant and Equipment

$ 30,500 + $ 15,100 - $ 120,700

= - $ 75,100

i.e There is net outflow of Free cash flows to the tune of $ 75,100