Question

Scenario Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities...

Scenario Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities
1. + + +
2. + + -
3. + - +
4. + - -
5. - + +
6. - + -
7. - - +
8. - - -

Based on the chart above which company profile will be fit the cash flow pattern for scenario 2?

A

Successful, but actively relocating using financing from operations with cash from creditors and shareholders.

B

Struggling, but using cash inflows from the sale of capital assets and new borrowings to remain in operation.

C

Successful, mature company that is downsizing and returning capital to shareholders and repaying debt.

D

Struggling, but using existing cash balances to cover losses, purchase capital assets and repay creditors.
Business   Accounting   
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Homework Answers

Answer #1

Scenario 2:

Positive Cash flow from Operations; Positive cash flow from investing activities; Negative cash flow from Financing activities.

The correct answer is C. "Successful, mature company that is downsizing and returning capital to shareholders and repaying debt."

Explanation:

Positive Cash flow from Operations = Successful

Positive cash flow from investing activities = Downsizing (i.e. cash has been received from sale of assets)

Negative cash flow from Financing activities.= Returning capital to shareholders and repaying debt, thus, negative cash flows due to repayment

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