Which of the Following Is Considered an Investing Activity When

question 4

Multiple Choice

Which of the following is considered an investing activity when preparing the statement of cash flows?

• A) a purchase of equipment
• B) a payment on an equipment note
• C) sale of common stock
• D) payment of interest on a bond issue

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Definitions:

Hurdle Rate

The minimum rate of return required by management for an investment to be acceptable, used in budgeting and capital allocation decisions.

Internal Rate

This term is too broad without specific context, such as “Internal Rate of Return (IRR).” Assuming IRR, it is a financial metric used to estimate the profitability of potential investments.

Present Value

The today's value of a forthcoming sum of money or cash flow sequence, determined by a specific rate of return.

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period.