In Preparing a Company's Statement of Cash Flows for the Year

question 154

Multiple Choice

In preparing a company's statement of cash flows for the year just ended, the following information is available: $\begin{array} { l r } \text { Loss on the sale of equipment } & \$ 14,000 \\\hline \text { Purchase of equipment } & 225,000 \\\hline \text { Proceeds from the sale of equipment } & 106,000 \\\hline \text { Repayment of outstanding bonds } & 87,000 \\\hline \text { Purchase of treasury stock } & 25,000 \\\hline \text { Issuance of common stock } & 96,000 \\\hline \text { Purchase of land } & 115,000 \\\hline \text { Increase in accounts receivable during the year } & 33,000 \\\hline \text { Decrease in accounts payable during the year } & 75,000 \\\hline \text { Payment of cash dividends } & 35,000\end{array}$
- Net cash flows from investing activities for the year were:

• A) $234,000 of net cash used.
• B) $340,000 of net cash used.
• C) $120,000 of net cash provided.
• D) $259,000 of net cash used.
• E) $280,000 of net cash provided.

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Definitions:

Plowback Ratio

The proportion of earnings retained by a company after dividends have been paid out, indicating the level of reinvestment in the business.

Required Return

The minimum expected return an investor demands for holding a particularly risky investment.

Market Capitalization Rate

An alternative term often used to refer to the cost of equity or the expected return of a market portfolio.

Plowback Ratio

A metric indicating the percentage of earnings retained by a company after dividends have been paid out to shareholders.