Question 6 Which of the following cash flow combinations would best describe the first months of a start-up company?1 pointCFO > 0; CFI < 0; CFF < 0CFO < 0; CFI > 0; CFF > 0CFO > 0; CFI < 0; CFF > 0CFO < 0; CFI < 0; CFF > 0
Question
Question 6 Which of the following cash flow combinations would best describe the first months of a start-up company?1 pointCFO > 0; CFI < 0; CFF < 0CFO < 0; CFI > 0; CFF > 0CFO > 0; CFI < 0; CFF > 0CFO < 0; CFI < 0; CFF > 0
Solution
The best description for the first months of a start-up company would be CFO < 0; CFI < 0; CFF > 0.
Here's why:
CFO (Cash Flow from Operations): This is likely to be negative in the first few months of a start-up as the company may not have a positive cash flow from its core business operations yet.
CFI (Cash Flow from Investing): This is also likely to be negative as the company is probably investing in assets (like equipment, property, etc.) to get the business off the ground.
CFF (Cash Flow from Financing): This is likely to be positive as the company is probably raising funds from investors, loans, etc. to finance its operations and investments.
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