If a Company Has Both an Inflow and an Outflow

question 132

Multiple Choice

If a company has both an inflow and an outflow of cash related to property, plant, and equipment,

• A) the two cash effects can be netted and presented as one item in the investing activities section of the statement of cash flows.
• B) the cash inflow and the cash outflow should be reported separately in the investing activities section of the statement of cash flows.
• C) the two cash effects can be netted and presented as one item in the financing activities section of the statement of cash flows.
• D) the cash inflow and the cash outflow should be reported in the financing activities section of the statement of cash flows.

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Definitions:

Cost Of Capital

The cost of funds used for financing a business, expressed as the rate of return that investors expect from the capital invested in the business.

Output Effect

The impact on the overall production or output of a firm or economy resulting from a change in demand or other economic variables.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods or services, leading consumers to replace more expensive items with cheaper alternatives.

Profit-Maximizing Firm

A company that operates with the primary goal of maximizing its profits by adjusting output and pricing.