6. Free cash flow Accounting statements represent a company’s earnings, but thisis not the real cash that a company generates. Earnings data can bemanipulated and can be deceiving. Thus, corporate decision makersand security analysts focus on the free cash flow that a firmgenerates to analyze the company’s real cash position. Which of the following statements best describes free cashflow? Cash flows generated by operating the business Residual cash flow after taking into account operating cashflows, including fixed-asset acquisitions, asset sales, andworking-capital expenditures Suppose you are the only owner of a chain of coffee shops nearuniversities. Your current cafeÌs are doing well, but you areinterested in starting a fine-dining restaurant. You decide to usethe cash generated from your existing business to enter into a newbusiness. Your accountant provides you with the following data onyour current financial performance: Financial update as of June 15 | • | Your existing business generates $111,000 in EBIT. | | • | The corporate tax rate applicable to your business is 25%. | | • | The depreciation expense reported in the financial statementsis $21,143. | | • | You don’t need to spend any money for new equipment in yourexisting cafeÌs; however, you do need $16,650 of additionalcash. | | • | You also need to purchase $8,880 in additional supplies—such astableclothes and napkins, and more formal tableware—on credit. | | • | It is also estimated that your accruals, including taxes andwages payable, will increase by $5,550. |
Based on your evaluation you have   in free cashflow. Free cash flow can be used for various reasons, includingdistributing it to stockholders and debtholders. Which of thefollowing is not a use of free cash flow? Acquiring operating assets Distributing dividends to stockholders | 
