Which of the following activities results in an increase in a firm's cash?

• A. Purchasing equipment with cash
• B. Declaring a cash dividend
• C. Paying off a loan
• D. Issuing common stock for cash

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of cash inflows and outflows. Cash inflows refer to activities that bring cash into the firm, while cash outflows refer to activities that use or reduce the firm's cash.
2. Step 2: Analyze each activity listed in the problem to determine whether it results in a cash inflow or outflow. For example, purchasing equipment with cash is a cash outflow because the firm is spending cash to acquire the equipment.
3. Step 3: Evaluate the activity of declaring a cash dividend. Declaring a dividend typically results in a cash outflow because the firm is distributing cash to its shareholders.
4. Step 4: Consider the activity of paying off a loan. This is also a cash outflow because the firm is using cash to settle its debt obligations.
5. Step 5: Examine the activity of issuing common stock for cash. This results in a cash inflow because the firm receives cash in exchange for issuing shares of its stock to investors.