Question

An assisted living facility in your town is currently at capacity. The company that operates it decides to expand and build an additional wing on to the building that will house 20 more residents. Which of the following does this represent for the company?

A) positive cash flow
B) seasonality
C) negative cash flow cycle
D) long-term investment

Answer 1

The building of a new wing in an assisted living facility is a long-term investment, which may initially result in a negative cash flow but aims to foster growth and expansion to generate more profits in the future.

Step-by-step explanation:

The assisted living facility's decision to build an additional wing to house 20 more residents represents a long-term investment for the company. This expansion allows the company to accommodate more residents, potentially increasing revenue in the future. However, in the short term, it may represent a negative cash flow as funds are used for construction and development, before any additional revenue is realized. This type of reinvestment reflects the company's focus on growth and expansion over the long run, acknowledging that the cash spent now on improving or adding physical assets will contribute to a larger cash flow and profits once the new wing is operational and filled with residents.