For many years, Microsoft has generated considerable free cash flow. Up to 2004, it paid no dividends and had no debt to pay off, so it invested the cash in interest-bearing securities. Its balance sheet at the end of its second (December) quarter for fiscal year ending June 2005 reported the following among current assets (in millions):

You can see a significant reduction in both cash and short-term investments. During the second quarter, Microsoft decided to pay its first dividend in the form of a large special dividend. Exhibit 10.2 gives the cash flow statement for the quarter, along with a note on interest received on the investments listed above. The firm's tax rate is 37.5 percent.
Answer the following questions about the quarter ended December 31, 2004:
a. What were the cash dividends paid to common shareholders?
b. What was the net dividend paid out to shareholders?
c. Calculate (unlevered) cash flow from operations for the quarter.
d. Calculate cash invested in operations.
e. Calculate free cash flow.
f. Why was the "net cash from investing" number reported for 2004 so different from that for 2003? Is the large difference due to a change in Microsoft's investment in its operations?
g. Microsoft maintains $60 million in operating cash. What was its net investment in financial assets during the quarter (before any effect of exchange rates)?
After answering these questions, you have the ingredients to construct a reformulated cash flow statement. Go ahead and doit.

EXHIBIT 10.2 Cash Flow Statement for Microsoft Corporation for Fiscal Second Quarter, 2005 Cash Flow Statements ln millions, unaudited) Three Months Ended December 31 2003 2004 Operations Net inccme Deprecatn and amortization Stock-based compensationi et recogized igansylosses on investments Stock option income tax benefits Defered icome taxes Utearned revenue Recognition of unearne revenue S 1,549 3,463 3,232 (321) 148 965 2,774 (3,166) (1,G04) (3,166) (1,398) Other curent assets Other long-term assets Other current abilities Other long-term iabilties Net cash trom operations Financing Common stock issued Cammon stock repurchased Comman dividends Net cash from financing Investing Additions to property and plant Acqusition of comparies net of cash acquired Purchases of investments Matuenities of investments Sales of itvestments Net cash from investing Net change in cash and equivalents Effect of exchange rates on cash and ecuivalents Cash and equivalents, beginning of period Cash and equivalents, end of period 1.256 4,574 3,619 189 730) (1,729) 2.270 (33,672) (176) (16,013) 20,068 172) 22.377) 825 9,775 23.414 355 26 5,768 5 6,149 11.141