Question

a) Why would a company in the introductory stage of its life cycle be more likely to raise equity than debt?

b). In what section of the cash flow statement could the following items be found:

Debt Issuance

Purchase of Plant Property and Equipment

Dividends

Sale of a piece of machinery

Depreciation

Accounts Receivable

c). What are some of the reasons why a company with positive net income could have negative cash flow from operations?

Answer 1

Question a

The company would be more likely for equity because the company in introductory stages may not be making profits and may not have positive cash flows to pay regular interest or debt commitments which may force the company to bankruptcy.

Question b

Question 1-Cash Flow from Financing Activity

Question 2-Cash Flow from Investing Activity

Question 3-Cash Flow from Financing Activity/Cash Flow from Investing Activity

Question 4-Cash Flow from Investing Activity

Question 5-Not in Cash Flow statement

Question 6-Cash flow from Operating Activity

Question c

The reasons can be-

• Non collection of account receivable.
• High capital income in the income statement.
• Major non-operating income in the income statement.