he most recent financial statements for Innovative Services (IS) appear below. Use this information to answer questions 4 through 14.

Innovative Services				Innovative Services
Balance Sheet				Income Statement
$ billions; year ending 30 Sept:				$ billions
Fiscal Year:	2020	2021		year ending 30 Sept 2021
Assets				Sales	80
Current Assets	10	10		less COGS (w/o Dep.)	75
Net Fixed Assets	50	80		less Depreciation	5
Total Assets	60	90		EBIT	0
				less Interest	2
				Pretax Income	-2
Liabilities				less Taxes	0
Current Liabilities	0	20		Net Income	-2
Long-term Debt	30	20
Equity				Dividends	8
CS&PIC	50	60		Retained Earnings	-10
ARE	0	-10
less Treasury Stock	20	0
Total Liab. & Equity	60	90
CS&PIC is Common Stock & Paid-in Capital ARE is Accumulated Retained Earnings				COGS is Cost of Goods Sold

4. Calculate Arrow 4, Cash Flow to Creditors, in billions of dollars. (Enter $1,000,000,000 or $1b as 1.)

5. Calculate Arrow 5, Cash Flow to Stockholders, in billions of dollars. (Enter $1,000,000,000 or $1b as 1.)

6. Calculate Arrow 1, Cash Flow from Normal Operations, in billions of dollars. (Enter $1,000,000,000 or $1b as 1).

7. Calculate Arrow 2, Cash Flow from Net Capital Spending, in billions of dollars. (Enter $1,000,000,000 or $1b as 1.)

8. Calculate Arrow 3, Free Cash Flow, in billions of dollars. (Enter $1,000,000,000 or $1b as 1.)

9. Which of these statements most accurately describes ISs cash flow diagram?

Select one:

a.

Arrow 1 points left, away from the firm.

b.

Arrow 1 points down, away from the firm.

10. Which of these statements most accurately describes ISs cash flow diagram?

Select one:

a.

Arrow 2 points left, towards the firm.

b.

Arrow 2 points down, away from the firm.

c.

Arrow 2 points up, towards the firm.

11. Which of these statements most accurately describes ISs cash flow diagram?

Select one:

a.

Arrow 3 points down, away from the firm.

b.

Arrow 3 points right, away from the firm

c.

Arrow 3 points left, towards the firm.

12. Which of these statements most accurately describes ISs cash flow diagram?

Select one:

a.

Arrow 4 points up, towards creditors.

b.

Arrow 4 points down, towards stockholders.

c.

Arrow 4 points away from creditors, towards the firm.

13. Which statement best interprets the complete cash flow diagram for Innovative Services?

Select one:

a.

IS generated a cash inflow from normal operations, some of which IS used to buy new fixed assets, causing a cash outflow from net capital spending. IS had positive free cash flow which flowed to creditors and stockholders.

b.

IS generated a cash outflow from normal operations. IS also spent cash on new fixed assets, causing a cash outflow from net capital spending. IS had negative free cash flow. Cash flowed from creditors and stockholders to the firm to cover the cash loss from normal operations and net fixed asset purchases.

c.

IS generated a cash inflow from normal operations. IS also bought fixed assets, causing a cash outflow from net capital spending. IS had negative free cash flow. Cash flowed from stockholders to the firm which, together with the cash from normal operations, paid for capital spending. Also, some cash flowed from stockholders to creditors.

d.

IS generated a cash outflow from normal operations. IS also sold fixed assets, causing a cash inflow from net capital spending. IS had negative free cash flow. Cash flowed from creditors and stockholders to the firm and, together with the cash from fixed asset sales, covered the cash loss from normal operations.

c.

Arrow 1 points right, towards the firm.