Armstrong Products saw an increase in operating net cash flow over the prior year, but cash on its balance sheet decreased. This situation can be explained if the company made a large investment in a new, profitable plant. The investment used cash but will generate profits in the future.

1. Analysts following Armstrong Products recently noted that the company's operating net cash
flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of
the following factors could explain this situation?
Answer
The company issued new long-term debt.
The company cut its dividend.
The company made a large investment in a profitable new plant.
The company sold a division and received cash in return.
The company issued new common stock.
The company issued new long-term debt.
The company cut its dividend.
The company made a large investment in a profitable new plant.
The company sold a division and received cash in return.
The company issued new common stock.
Solution
The company made a large investment in a profitable new plant.
The company made a large investment in a profitable new plant.