Please use the selected financial data for The Daily Grind, a Jersey City coffee shop chain,...

Please use the selected financial data for The Daily Grind, a Jersey City coffee shop chain, to answer the following questions:

Year	Free Cash Flow	Capital spending	Change in net working capital	Operating Cash Flow
2019		$200	$100	$1,000
2020		$600	$200	$950

4a. Please compute free cash flow for 2019 and 2020.

4b. In what year did shareholders and creditors have more money available to them? Why?

4c. In what year did The Daily Grind open up a new shop (made a large investment in fixed assets)? Why?

4d. In what year did The Daily Grind have the largest cash flow from their normal business of producing and selling coffee? Why?

Solutions

Expert Solution

4a. Please compute free cash flow for 2019 and 2020.

2019 = Operating cash flow - Change in working capital - Capital Spending = $1000 - 100 - 200 = $700

2020 = Operating cash flow - Change in working capital - Capital Spending = $950 - 200 - 600 = $150

4b. In what year did shareholders and creditors have more money available to them? Why?

Shareholders and Creditors have more money available in the year 2019 because the free cash flow is higher in that year

4c. In what year did The Daily Grind open up a new shop (made a large investment in fixed assets)? Why?

The New shop should have been opened in 2020 because capital spending is higher in the year 2020

4d. In what year did The Daily Grind have the largest cash flow from their normal business of producing and selling coffee? Why?

Largest cash flow from business in 2019 = Operating cash flow - Change in working capital = $1000 - 100 = $900

Largest cash flow from business in 2020 = Operating cash flow - Change in working capital = $950 - 200 = $750

The company had higher cash flow from business in the year 2019 because the company's operating cash flow are higher than 2020's value and change in working capital is lower than 2020's value

jeff jeffy answered 1 year ago

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