Answer:
The correct option is d) <u>Decrease</u>.
Explanation:
Free cash flow (FCF) can be described as the cash that is generated by a company after cash outflows required to support operations and maintain the capital assets of the company have been accounted for.
Therefore, FCF can be calculated by adjusting for non-cash expenses, changes in working capital, and capital expenditures to reconcile net income.
The total effect of these transactions on free cash flow can be determined by first calculating the account receivable for the year as follows:
Calculation of account receivable for the year:
<u>Particular Amount ($)</u>
Credit sales 2,250
Cash collected from the customer (1,350)
Sales returns <u> (450) </u>
Account receivable <u> 450 </u>
A partial free cash flow statement can therefore be prepared as follows:
Cheyenne Corp.
Free cash flow statement (Partial)
<u>Particular Amount ($) </u>
Net income xx
(Increase) decrease in non-cash current assets:
Increase in account receivable <u> (450) </u>
Free cash flow <u> (450) </u>
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Since the free cash flow is negative or minus $450, it therefore implies that the total effect of these transactions on free cash flow is a <u>decrease</u>.
Therefore, the correct option is d) <u>Decrease</u>.
