Lovato Motors Inc. has cash flows from operating activities of $720,000. Cash flows used for investments in property, plant, and equipment totaled $440,000, of which 85% of this investment was used to replace existing capacity.Determine the free cash flow for Lovato Motors Inc.

Lovato Motors Inc. has cash flows from operating activities of $720,000. Cash flows used for investments in property, plant, and equipment totaled $440,000, of which 85% of this investment was used to replace existing capacity.Determine the free cash flow for Lovato Motors Inc.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 1P

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Question

Lovato Motors Inc. has cash flows from operating activities of $720,000. Cash flows used for investments in property, plant, and equipment totaled $440,000, of which 85% of this investment was used to replace existing capacity.
Determine the free cash flow for Lovato Motors Inc.

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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