Following the sale, what is the change in Cash Flow from Operations (CFO)?

Following the sale, what is the change in Cash Flow from Operations (CFO)?

• A. Up by $6
• B. Up by $16
• C. Down by $6
• D. Unchanged

Answer: (B)

Cash flow from operations shows the cash impact of the company’s core activities after adjusting net income for noncash items and for changes in working capital. A sale affects CFO only to the extent it changes cash collections or working capital, not the asset sale cash itself (that usually goes to investing activities). If the sale improves cash collections or reduces working capital requirements, CFO increases. In this scenario the effect is an increase of 16, so CFO is up by 16. The other options would imply smaller or negative or no change, which don’t align with how the sale altered the operating cash components. If the sale had been of a noncurrent asset, that cash would appear in investing activities, with gains adjusted out of net income in the CFO reconciliation.

Cash flow from operations shows the cash impact of the company’s core activities after adjusting net income for noncash items and for changes in working capital. A sale affects CFO only to the extent it changes cash collections or working capital, not the asset sale cash itself (that usually goes to investing activities). If the sale improves cash collections or reduces working capital requirements, CFO increases. In this scenario the effect is an increase of 16, so CFO is up by 16. The other options would imply smaller or negative or no change, which don’t align with how the sale altered the operating cash components. If the sale had been of a noncurrent asset, that cash would appear in investing activities, with gains adjusted out of net income in the CFO reconciliation.