Analyzing Cash Flows (Medium)

Consider the following comparative balance sheets for the Liquidity Company:

The company paid a dividend of $150,000 during 2008 and there were no equity contributions or stock repurchases.

a. Calculate free cash flow generated during 2008.

b. Where did the increase in cash come from?

c. How would your calculation in part

(a) change if the firm invested in short-term deposits rather than paying a dividend?

Operating cash Accounts receivable Inventories Land (unamortized cost) Plant assets Less: accumulated depreciation Accounts payable Capital stock 2008 $ 435,000 December 31 2007 $ 50,000 40,000 100,000 400,000 200,000 (100,000) 1,075,000 25,000 1,050,000 $1,075,000 -0- -0- 800,000 200,000 -0- 1,050,000 -0- 1,050,000 $1,050,000