Below is an excerpt from the cash flow statement of a firm for fiscal year 2003:What is the free cash flow for 2003?

Question

BlackTom AI · Accepted Answer

Free cash flow = Net cash provided by operating activities minus net capital expenditures (capital spending that is necessary to maintain/expand the business, including capitalized software).

1) Relevant knowledge points and concepts
- Free cash flow (FCF) commonly = Cash from operations − Net capital expenditures.
- Net capital expenditures = Purchases of plant/equipment and capitalized software minus proceeds from disposal of plant/equipment. Purchases of marketable securities and proceeds from marketable securities are financing/investing in financial assets and are not included in operating capex for FCF.

2) Step-by-step reasoning
- Start with net cash provided by operating activities (this already incorporates net income, depreciation, amortization, working capital changes, etc.). From the statement this is: 3,500.
- Identify capital expenditures that should be subtracted: Payments for plant and other property (2,000) and investment in software (500) are capital investments. Proceeds from disposition of plant and other property (800) offset these outflows.
- Do not include purchases/proceeds of marketable securities when computing operating FCF because these are financial investments, not operating capital expenditures.

3) Calculations (all intermediate steps)
- Total cash outflows for capital assets = Payments for plant & other property + Investment in software = 2,000 + 500 = 2,500.
- Subtract proceeds from sale of plant & other property = 2,500 − 800 = 1,700 (net capital expenditures).
- Free cash flow = Net cash from operations − Net capital expenditures = 3,500 − 1,700 = 1,800.

4) Why the correct answer is correct
- The calculation follows the standard FCF definition and treats capitalized software as capex while excluding financial investments. Using the numbers reported on the cash flow statement gives FCF = $1,800.

5) Why the other options are incorrect
- $1,858.5 (b) and $3,558.5 (d) are not generated by the standard FCF formula from the reported cash flows; they likely involve inappropriate adjustments (tax effects or mixing interest, which are not required here). $3,500 (c) would be just the operating cash flow, not subtracting required net capex, so it overstates FCF.

6) Conclusion
- Therefore, the free cash flow for 2003 is $1,800, which matches the provided answer (a. $1,800).

Below is an excerpt from the cash flow statement of a firm for fiscal year 2003:What is the free cash flow for 2003?单项选择题

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