Suppose you are the only owner of a chain of coffee shops near universities. Your...
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Suppose you are the only owner of a chain of coffee shops near universities. Your current cafes are doing well, but you are interested in starting a fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you with the following data on your current financia performance: Financial update as of June 15 Your existing business generates $135,000 in EBIT. The corporate tax rate applicable to your business is 35%. The depreciation expense reported in the financial statements is $25,714. You don't need to spend any money for new equipment in your existing cafes; however, you do need $20,250 of additional cash. You also need to purchase $10,800 in additional supplies-such as cloth tableclothes and napkins, and more formal tableware-on credit. It is also estimated that your accruals, including taxes and wages payable, will increase by $6,750. Based on your evaluation you have in free cash flow. Free cash flow can be used for various reasons, including distributing it to stockholders and debtholders. Which of the following is not a use of free cash flow? Acquiring operating assets Distributing dividends to stockholders
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