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Nova Electrics anticipates cash flow from operating activities of $9 million in 20X1. It will need...

Nova Electrics anticipates cash flow from operating activities of $9 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 $0.30 million and preferred stock dividends at $0.25 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.)

b. What does the concept of free cash flow represent?
  

  • Free cash flow represents the funds that are available for special financing activities, such as a leveraged buyout.

  • Free cash flow represents the funds that are available for investing activities, such as purchasing plant and equipment assets.

  • Free cash flow equals cash flow from operating activities.

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