If Pepsi build a new office for $200 million and took a loan for the same amount at 10% interest, which of the following is true?



1
Cash flow from from investing will decrease by $200 million and Cash flow from financing will increase by $180 million.

I agree that the cash flow from investing will decrease by 200 million since its a loan,but how will cash flow from financing increase by 180 million?Kindly can anyone explain me this concept....

1 Answer(s)


0

Correct answer is the first choice -
First cash flow from financing will increase by $200mn due to the loan (cash inflow), then in the same period cash flow from financing will decrease by $20mn due to the interest payable (cash outflow).

Hence net of $200mn inflow - $20mn outflow is $180mn.

Then since money is being spend on the building cash flow from investing will decrease by $200mn.

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