Which of the following is the effect on a company's liquidity and profitability metrics when it purchases a piece of equipment?
A) Its free cash flow decreases.
B) Its free cash flow increases.
C) Its asset turnover increases.
D) Its asset turnover remains unaffected.

Question

Which of the following is the effect on a company's liquidity and profitability metrics when it purchases a piece of equipment? ​
A) ​Its free cash flow decreases.
B) ​Its free cash flow increases.
C) ​Its asset turnover increases.
D) ​Its asset turnover remains unaffected.

Quizplus · Accepted Answer

When a company purchases a piece of equipment, it typically results in an outflow of cash, which decreases its free cash flow. While the equipment may increase the company's asset base, it may not necessarily lead to an increase in asset turnover or profitability metrics in the short term.

Which of the Following Is the Effect on a Company's