Question: [Cash flows; CFA %7 adapted] (Cash flow data el Palomba Pizza Stores fur the year ended December 31. 2000 follow:

Cash payment of dividends                      $(35.000)

Acquisition of Naples Pizza                        (14.000)

Cash payments for interest                       (10.000)

Cash payments for salaries                       (45.000)

Sale of equipment 38.000

Retirement of common stock                    (25.000)

Purchase of equipment                           (30.000)

Cash payments to suppliers                     (85.000)

Cash collections from customers               250.000

Cash at December 31, 1999                      50.000

a. Prepare a statement of cash flows for Palomba for 2000. Classify cash flows as required by SEAS 95.

b. Discuss. from an analyst's viewpoint, the purpose of classifying cash flows into the three categories used in part a.

c. Discuss whether any of the cash flows should be classified differently.

d. Discuss the significance of the change in cash during 2000 as an indicator of Palombas performance.

e. Calculate Palombas free cash flow. I: In your calculation of free cash flow, justify your treatment of cash payments for interest and cash paid for acquisitions.