How does cash flow from investing activities change when a company purchases property, plant, and equipment?

How does cash flow from investing activities change when a company purchases property, plant, and equipment?

• A. It increases due to investing in assets.
• B. It remains unchanged regardless of the purchase.
• C. It decreases due to cash outflow from the purchase.
• D. It increases the cash balance.

Answer: (C)

Cash flow from investing activities reflects the cash used in or generated from the purchase and sale of long-term assets like property, plant, and equipment (PPE). When a company purchases PPE, it represents a cash outflow because the company is spending money to acquire these assets for long-term use in its operations. This spending reduces the overall cash available, thereby leading to a decrease in cash flow from investing activities. Investing in assets such as property, plant, and equipment does not result in an increase in cash inflow; instead, it signifies a commitment of cash to support operational capacity and growth. Therefore, when a company makes such purchases, it will negatively impact the cash flow from investing activities, confirming that it decreases due to cash outflow.

Cash flow from investing activities reflects the cash used in or generated from the purchase and sale of long-term assets like property, plant, and equipment (PPE). When a company purchases PPE, it represents a cash outflow because the company is spending money to acquire these assets for long-term use in its operations. This spending reduces the overall cash available, thereby leading to a decrease in cash flow from investing activities.

Investing in assets such as property, plant, and equipment does not result in an increase in cash inflow; instead, it signifies a commitment of cash to support operational capacity and growth. Therefore, when a company makes such purchases, it will negatively impact the cash flow from investing activities, confirming that it decreases due to cash outflow.