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Which of the following actions are most likely to directly increase cash as shown on a firm's balance sheet? Select the appropriate assumptions that underlie your answer.

1. It issues $7 million of new common stock.
2. It buys new plant and equipment at a cost of $3 million.
3. It reports a large loss for the year.
4. It increases the dividends paid on its common stock.

1. Statements (b), (c), and (d) will increase the amount of cash on a company's balance sheet. Statement (a) will decrease cash through the sale of common stock. Selling stock uses cash from financing activities. Note that net operating losses are carried forward to future years increasing income and, as a result, cash in the current year.
2. Statements (b) and (d) will increase the amount of cash on a company's balance sheet. Statement (a) will increase cash through the sale of common stock. Selling stock provides cash through financing activities. Net operating losses are carried forward to future years to reduce taxable income in those years, reduce taxes, and thus increase cash flow but the immediate effect in the current year is to reduce cash. Therefore, statement (c) will decrease the amount of cash on a company's balance sheet.
3. Statements (b), (c), and (d) will decrease the amount of cash on a company's balance sheet. Statement (a) will increase cash through the sale of common stock. Selling stock provides cash through financing activities. Note that net operating losses are carried forward to future years to reduce taxable income in those years, reduce taxes, and thus increase cash flow but the immediate effect in the current year is to reduce cash.
4. Statements (b) and (d) will decrease the amount of cash on a company's balance sheet. Statement (a) will decrease cash through the sale of common stock. Selling stock uses cash from financing activities. Net operating losses are carried forward to future years increasing income and, as a result, cash in the current year. Therefore, statement (c) will increase the amount of cash on a company's balance sheet.
5. Statements (b) and (d) will decrease the amount of cash on a company's balance sheet. Statement (a) will increase cash through the sale of common stock. Selling stock provides cash through financing activities. Statement (c) would neither increase or decrease cash for taxes paid in a prior year.

Select one of the Following