Nova Electrics anticipates cash flow from operating activiti

Nova Electrics anticipates cash flow from operating activities of $11 million in 20X1. It will need to spend $7.0 million on capital investments to remain competitive within the industry. Common stock dividends are projected at $1.10 million and preferred stock dividends at $.50 million.  

a. What is the firm’s projected free cash flow for the year 20X1? (Enter your answer in millions of dollars rounded to 2 decimal places.)

Solution

Free cash flow = Cashflow from operating activities - Capital investment - common stock dividend- preferred stock dividend

=11 - 7 - 1.10 - 0.50 = $ 2.40 million