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.

Expert Solution

Free Cash flow : Free cash flow is characterised as a measurement of a company's financial success. It displays the amount of money left over after paying for capital expenses. These funds are utilised for acquisitions, dividend payments, growth, the creation of new goods, manufacturing, expansion, and debt repayment.

Formula used to calculate free cash flow

Free cash flow = Net cash provided by operating activities - cash payment planned for investments in long term investments - cash dividends

Calculation of amount of cash paid for maintaining propery,plant and equipment.

Cash paid for maintaining property,plant and equipment = Cash flows from investment in ppe x replacement percentage

=$440,000 x 85%

=$374,000

Particulars	Amount$
Cash flow from operating activities	720,000
Less : Cash paid for maintaining property,plant & equipment	374,000
Free cash flow	346,000

Therefore, the free cash flow for lovato motors incorporation is $346,000

balaji rao answered 2 years ago

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