Reading 34: Understanding the Cash Flow Statement - LOS i equipment, financing, period, during, style

cfaedu

1.The RR Corporation had cash flow from operations of $20 million. RR purchased $5 million in equipment and sold $3 million of equipment during the period. Cash flows from financing were -$2 million. What is RR's free cash flow for the period?

A)   $18.

B)   $22.

C)   $20.

D)   $24.

2.The EP Corporation had cash flow from operations of $30 million. EP reported the following:

In Millions	2000	2001
Property, Plant, and Equipment (gross)	$100	$110
Less accumulated depreciation	60	65
Property, Plant, and Equipment (net)	$40	$45

What is EP's free cash flow for the period?

A)   $35 million.

B)   $30 million.

C)   $40 million.

D)   $20 million.

cfaedu

答案和详解如下：

1.The RR Corporation had cash flow from operations of $20 million. RR purchased $5 million in equipment and sold $3 million of equipment during the period. Cash flows from financing were -$2 million. What is RR's free cash flow for the period?

A)   $18.

B)   $22.

C)   $20.

D)   $24.

The correct answer was A)

Free cash flow (FCF) is generally defined as cash flow from operations (CFO) less net capital expenditures = 20 - 5 + 3 = $18.

2.The EP Corporation had cash flow from operations of $30 million. EP reported the following:

In Millions	2000	2001
Property, Plant, and Equipment (gross)	$100	$110
Less accumulated depreciation	60	65
Property, Plant, and Equipment (net)	$40	$45

What is EP's free cash flow for the period?

A)   $35 million.

B)   $30 million.

C)   $40 million.

D)   $20 million.

The correct answer was D)

Free cash flow (FCF) is generally defined as cash flow from operations (CFO) less net capital expenditures = 30 - 10 = $20 million. Note that depreciation expense has already been adjusted out of cash flow from operations, so the increase (decrease) in the gross capital account will reflect the cash invested or realized from capital transactions.