Trace the passage of cash from the ﬁnancial markets to the ﬁrm and from the ﬁrm back to the ﬁnancial markets.
A) 1. Cash ﬂows to the ﬁrm from the ﬁnancial market. 2. The ﬁrm invests the cash in current and ﬁxed assets. 3. These assets generate cash. 4. Corporate taxes are paid. 5. Cash ﬂow
Is reinvested in the ﬁrm. 6. The rest goes back to the ﬁnancial markets as cash paid to
Creditors and shareholders.
B) 1. The ﬁrm invests the cash in current and ﬁxed assets. 2. Cash ﬂows to the ﬁrm from the ﬁnancial market. 3. These assets generate cash. 4. Corporate taxes are paid. 5. Cash ﬂow
Is reinvested in the ﬁrm. 6. The rest goes back to the ﬁnancial markets as cash paid to
Creditors and shareholders.
C) 1. The ﬁrm invests the cash in current and ﬁxed assets. 2. These assets generate cash. 3. Cash ﬂows to the ﬁrm from the ﬁnancial market. 4. Corporate taxes are paid. 5. Cash ﬂow
Is reinvested in the ﬁrm. 6. The rest goes back to the ﬁnancial markets as cash paid to
Creditors and shareholders.
D) 1. The ﬁrm invests the cash in current and ﬁxed assets. 2. These assets generate cash. 3. The rest goes back to the ﬁnancial markets as cash paid to creditors and shareholders. 4.
Cash ﬂows to the ﬁrm from the ﬁnancial market. 5. Corporate taxes are paid. 6. Cash ﬂow
Is reinvested in the ﬁrm.
E) 1. The ﬁrm invests the cash in current and ﬁxed assets. 2. Corporate taxes are paid. 3. These assets generate cash. 4. Cash ﬂows to the ﬁrm from the ﬁnancial market. 5. Cash
ﬂow is reinvested in the ﬁrm. 6. The rest goes back to the ﬁnancial markets as cash paid to
Creditors and shareholders.

Question

Quizplus · Accepted Answer

The cash flows from the financial markets to the firm, which then invests it in current and fixed assets. These assets generate cash, which is used to pay corporate taxes and reinvested in the firm. The remaining cash is then paid to creditors and shareholders, going back to the financial markets. This is the correct order of how cash flows from the financial markets to the firm and then back again.

Trace the Passage of Cash from the ﬁNancial Markets to the ﬁRm