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Multiple Choice
Which of the following are cash flows to investors in stocks?
A
Depreciation expense
B
Interest payments on company bonds
C
Principal repayments on loans
D
Dividends received from the company
Verified step by step guidance
1
Understand the concept of cash flows to investors in stocks: Cash flows to investors in stocks refer to the monetary returns that stockholders receive from their investment in a company. These typically include dividends and proceeds from selling the stock.
Analyze each option provided in the problem: Depreciation expense, interest payments on company bonds, principal repayments on loans, and dividends received from the company.
Evaluate depreciation expense: Depreciation is a non-cash accounting expense that reduces the value of assets over time. It does not represent a cash flow to investors in stocks.
Evaluate interest payments on company bonds and principal repayments on loans: These are cash flows related to debt financing and are paid to creditors, not stockholders. Therefore, they are not cash flows to investors in stocks.
Identify dividends received from the company: Dividends are direct cash payments made to stockholders as a return on their investment. This is the correct example of a cash flow to investors in stocks.