The following summarizes free cash flows generated by General Electric from 2000- 2004 (in millions of dollars).

a. Explain why such a profitable firm as General Electric can have negative free cash flow.
b. In 2005, the firm announced that the years of building its set of businesses was "largely behind it," so it would be slowing its investment activity. What is the likely effect on free cash flow? How will GE's financing activities likely change? What are the financing alternatives in light of the changed free cash flow?

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2002 2003 2000 2001 2004 39,398 Cash from operations Cash investments Free cash flow 30,009 34,848 36,102 21,843 14,259 36,484 38,414 (1,930) 61,227 (26,379) 37,699 (7,690) 40,308 (910)