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Answer :
Final answer:
Benton, Inc.'s free cash flow is calculated by subtracting its planned capital expenditures from its net cash flow from operating activities. The company plans to spend more than it generates from operations, resulting in a negative free cash flow of $14,000. Therefore, the correct answer is A. $(14,000).
Explanation:
The question involves calculating Benton, Inc.'s free cash flow (FCF), an essential metric in financial analysis that represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Benton, Inc. expects net cash flow from operating activities to be $90,000. To find the free cash flow, we subtract the company's planned capital expenditures, which include purchases of equipment ($87,000) and repurchases of stock ($17,000), from its operational cash flow.
Here is the calculation:
- Net Cash Flow from Operating Activities: $90,000
- Total Planned Capital Expenditures (Equipment Purchase + Stock Repurchase): $87,000 + $17,000 = $104,000
- Free Cash Flow = Net Cash Flow from Operating Activities - Total Planned Capital Expenditures
- Free Cash Flow = $90,000 - $104,000 = -$14,000
Therefore, the answer is A. $(14,000). This result indicates that after accounting for the necessary investments and expenditures, Benton, Inc. will have a negative free cash flow, suggesting it might have to tap into existing cash reserves or seek external financing to meet its commitments.
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