CFI

1- bought asset for 10 million (2 million of cash, 3 million of bonds, 5 million of prefered stock) 2- sell the asset after one year for 12 million in cash Question > Cash flow from investments is ? Answer > 10 million, but i don’t get it ?! 12 - 10 = 2 million I won on this transaction from investment. Can somebody explain pleeeeeeeaaaaaaaaassssseeeeeeeee ?? thanks

CASH flow from Investing only considers cash transactions. The 3 million of bonds and 5 million of stock are not components of CFI.

but the cash flow are like:- -10 at the beginning for the purchase +12 at the end for the sale > I made 2 mio on the increase of my asset from investment, it should be CFI +2 mio. I dont understand why what I use to finance the buy is relevant ?! I feel so lost…

give it up. i am reaching that point now.

CFI- looks at asset acquisition equity, prefered stock and bonds is cashflow from financing so topher is right but the problem is the way the question is phrased becase for CFI you just consider what you have bought( regadless of where the money came from (equity, debt) and you campare with what you have disposed. the diffrence is what goes on the line of CFI on your Cashflow statement. In this case CFI is just +2

Try to stop thinking about accrual accounting for a second. The cash flow statement, as its name suggests, measures actual cash received and cash paid in transactions. The way you described the transaction is how it would be recorded on the income statement in year two (the $2MM gain). If someone buys an asset for $10MM, their cash outflow is $10MM. If someone sells the asset for $12MM the following year, they collect $12MM in cash during that year. The $2MM difference between the price paid for the asset and the price received for the asset is an accounting gain.

You can consider the 3 million of bonds and 5 million of preferred stock not as cash transactions thus you will get CFI of 10million. I don’t know if thats the right way to look at it though.

thus it might be 12 and not 10 ?

I think I get it now at the beginning, you buy your asset with equity and bonds (wich are not cash) and 2 mio of cash, thus, your cash outflow is just 2 then you sell it for 12 mio 12 - 2 = 10 Am I right ?

1- bought asset for 10 million (2 million of cash, 3 million of bonds, 5 million of prefered stock) CFF: 8m inflow (plus 2m paid in cash, but this one does not go in the cash flow statement) CFI: 10m outflow 2- sell the asset after one year for 12 million in cash CFI: 12m inflow End of year: CFI 2m infflow

Are they asking what CFI is in year 1 or year 2? It doesn’t matter that they financed part of the purchase with bonds and stock. Unless these notes and stock were issued to the seller in exchange for the property then they will be recorded as cash flows on CF statement. The transaction would be recorded as follows (assuming the notes weren’t issued to the seller cause then they’d be recorded as non-cash investing and financing activities): CASH FLOW STATEMENT Year 1: CFO: Assume it is zero CFI: $10MM outflow for purchase of property CFF: $3MM inflow from sale of bonds $5MM inflow from sale of preferred stock Change in Cash: -10 +3 + 5 = -2MM (this is also equals the amount of cash used in the transaction. Cash balance declines by $2MM). Year 2: CFO: Assume zero CFI: $12MM inflow from the sale of property CFF: -3MM outflow for retirement of bonds (we’re assuming principal was not paid down) -5MM outflow for repayment of preferred stock Change in cash: 12 -3 - 5 = $4MM (this is $2MM more than the original cash balance before the purchase in year 1 and is due to the gain on the sale) They must be asking what CFI is in year 1 and the answer must be -$10MM. If they were asking for year 2 then the answer would be $12MM.

rsat Wrote: ------------------------------------------------------- > 1- bought asset for 10 million (2 million of cash, > 3 million of bonds, 5 million of prefered stock) > 2- sell the asset after one year for 12 million in > cash > > Question > Cash flow from investments is ? > > Answer > 10 million, but i don’t get it ?! > > CFI - 10 when you buy it. when you sell it, 12 to the CFI and the 2 gain hits the income stmt but is netted out of CFO. If you recorded a loss on the eqpt, it’d be add back to CFO That’s what I think would happen

^You got it daj224.