a.

2012

2011

Cash flow from operating activities

$140,000

$120,000

Less: investments in fixed assets to maintain current production

90,000

60,000

Free cash flow

$50,000

$60,000

1 $120,000 x 75%

2 $80,000 x 75%

b. The change from $60,000 to $50,000 indicates an unfavorable trend.