The management of Morrow Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $870,300. It had net cash provided by operating activities of $643,900, paid cash dividends of $76,200, and had capital expenditures of $278,200. Compute the companys free cash flow and discuss whether an increase in the dividend appears warranted. what other factors should be contributed?

FCF = $365,700

Other factors to consider are

Whether there is any additional debit which need to pay?

and

Is there any investment opportunity which will grow the shareholders wealth further?

Explanation:

Free cash flow (FCF) is calculated as follows:

FCF = Net cash flow from operating activities - Capital expenditures

Dividend is paid from Free cash flow so, it is not included in the calculation.

Free Cash Flow= $643,900 - $278,200 = $365,700

The increase in the dividend is warranted because company has ability to maintanin dividends in order to satisfy investors. If there is no additional deductions, there is still $289,500 ( $365,700 - $76,200 ) for reinvestment.

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