Question

Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?

a. The company repurchases common stock.

b. The company purchases a new piece of equipment.

c. The company issues new common stock.

d. The company gives customers more time to pay their bills.

e. The company pays a dividend.

Answer 1

Solution :

Other things, held constant, if the company issues new common stock it will increase the amount of cash on a company's balance sheet.

If the company issues new common stock, the stockholders who purchase the new common stock will usually pay the company in cash for the purchase. This will result in increase in the cash balance in the company’s Balance Sheet.

The solution is Option c. The company issues new common stock.

The other options are Incorrect due to the reason

1. The company repurchases common stock.

If the company repurchases its common stock, it usually pays the stockholders in cash for the repurchase. This will result in decrease in the cash balance on the company’s Balance Sheet.

2. The company purchases a new piece of equipment.

When the company purchases a new equipment, it will have to pay in cash for the purchase. This will result in decrease in the cash balance on the company’s Balance Sheet.

4. The company gives customers more time to pay their bills.

If the company gives customers more time to pay their bills, it implies that there is a delay in collection of cash. This will result in decrease in the cash balance on the company’s Balance Sheet.

5. The company pays a dividend.

When the company pays dividend it is usually paid in cash. This will result in decrease in cash balance on the company’s Balance Sheet.