Question

Valencia company paid $1.1 million to purchase stock in another company, $0.5 million to repurchase treasury shares, $0.25 million to buy short-term investments, sold used equipment for $0.4 million when its book value was $0.3 million, and purchased new equipment for $1.7 million. what was the net cash flow from investing activities?

a. $2.65 million net cash outflow.
b. $2.4 million net cash outflow.
c. $3.15 million net cash outflow.
d. $2.55 million net cash outflow.

Answer 1

The net cash flow from investing activities for Valencia Company is a $2.65 million net cash outflow, calculated by summing up the cash outflows from various investments and subtracting the cash inflow from the sale of used equipment. Therefore correct option is A

Step-by-step explanation:

To calculate the net cash flow from investing activities, we need to take into account each transaction that involves investing cash flows and sum them accordingly. The purchase of stock in another company, the repurchase of treasury shares, and the purchase of short-term investments and new equipment represent cash outflows, while the sale of used equipment represents a cash inflow.

• Cash outflow for stock purchase: $1.1 million
• Cash outflow for treasury shares repurchase: $0.5 million
• Cash outflow for short-term investments: $0.25 million
• Cash inflow from sale of used equipment: $0.4 million (Note: We only consider the cash received, not the book value of the equipment.)
• Cash outflow for new equipment purchase: $1.7 million

Now, by summing the outflows and subtracting the inflow, we get:
($1.1 million + $0.5 million + $0.25 million + $1.7 million) - $0.4 million = $3.05 million - $0.4 million = $2.65 million net cash outflow

Therefore, the correct answer is a. $2.65 million net cash outflow.