In the year ending June 30, 2012, Microsoft spent $6,069 million to repurchase 256 million shares. It received cash proceeds of $1,269 million from the exercises of options. According to GAAP, Microsoft would report ______ million as ______ cash flow from the stock repurchase transactions (ignore the tax effect).

A. $6,069; financing
B. $4,800; financing
C. $6,069; operating

Correct Answer: B

The net cash outflow was $6,069 - $1,269 = $4,800 million. It would be reported as financing cash flow. However, it was effectively the net cash cost to Microsoft of having the option plan in place. Because the options were used as a form of compensation, net cash expended was related more to operations than to how the company is financed.