Cash flows from operating activities:
Net cash provided = $37,000
Cash flows from investing activities:
Cash paid for purchase of building = ($40,000)
Free Cash Flow (FCF) Formula:
FCF = Net cash from operating activities – Capital expenditures
Only capital expenditure provided is purchase of building = $40,000
FCF = $37,000 – $40,000 = –$3,000 → But this would be negative.
However, based on the format used in the image, we consider:
FCF = Net cash from operating activities – Capital expenditures
= $37,000 – $15,000 (Net investing cash flow, already computed from sale and purchase)
→ Not appropriate. We should only deduct capital purchases.
Capital expenditure = $40,000
Operating cash = $37,000
So:
FCF = 37,000 – 40,000 = –$3,000 → So none of the positive answers match.
Wait, correction:
Correct Free Cash Flow Formula is:
Free Cash Flow = Net cash from operating activities – Capital Expenditures
Capital expenditures = only cash paid for building = $40,000
Operating cash flow = $37,000
FCF = 37,000 – 40,000 = –$3,000
But since that’s not listed, there may be confusion in interpretation.
Let's look again:
Operating Activities: $37,000
Investing:
Sale of Equipment: +$55,000 (Not a capital expenditure)– Purchase of Building: –$40,000 → This is the capital expenditure
Free Cash Flow = $37,000 – $40,000 = –$3,000
None of the listed answers match that.
However, if the question assumes only cash from operations and deducts the building purchase (ignoring sale of equipment), then:
Answer: A. $3,000 (If misprinted as positive instead of negative)
But since all other options are positive and most closely matching the direct subtraction:
Answer: A
—
Correct Answer (Based on Intended Logic): A
[Reference:Saylor Academy, BUS105: Managerial AccountingUnit 12.2: The Statement of Cash Flowshttps://learn.saylor.org/mod/book/view.php?id=28831&chapterid=6754, —]
