CSLB Law & Business ExamBusiness FinancesMedium
A contractor is preparing a cash flow forecast for the next quarter. Which of the following would be classified as a cash outflow from investing activities?
- APurchase of a new company vehicle.
- BPayment of interest on a line of credit.
- CPayment of employee wages.
- DRepayment of a bank loan principal.
Show answer & explanationAnswer & explanation
Correct answer: A. Purchase of a new company vehicle.
Cash flows from investing activities relate to the purchase or sale of long-term assets (property, plant, and equipment) or investments in other companies. The purchase of a new company vehicle is acquiring a long-term asset, making it an investing outflow.
Why the other options are wrong
- B. This is typically an operating cash outflow (interest is an expense of operations).
- C. This is an operating cash outflow (related to normal business operations).
- D. This is a financing cash outflow (related to debt repayment).
Cash Flow from Investing Activities
Cash inflows and outflows related to the purchase and sale of long-term assets, such as property, plant, equipment, and investments in other businesses.
- Inflows: Sale of property, plant, equipment; sale of investments.
- Outflows: Purchase of property, plant, equipment; purchase of investments.
- Reflects management's decisions on capital expenditures.
Memory trick: OIF: Operations, Investing, Financing – where's the cash flowing?