Asked by Najia Calhoun on Apr 27, 2024
Verified
Which one of the following will decrease the net working capital of a firm? Assume that the current ratio is greater than 1.0.
A) Selling inventory at a profit.
B) Collecting an accounts receivable.
C) Paying a payment on a long-term debt.
D) Selling a fixed asset for book value.
E) Paying an accounts payable.
Net Working Capital
The difference between a company's current assets and current liabilities, indicating short-term financial health and operational efficiency.
Accounts Payable
Money owed by a company to its creditors for goods or services that have been delivered but not yet paid for.
- Evaluate the effects of cash flow dynamics and financing determinations on the business's fiscal condition.
Verified Answer
LG
Lakyra GarthApr 30, 2024
Final Answer :
C
Explanation :
Paying a payment on a long-term debt will decrease the net working capital of a firm because it involves using current assets to pay off a long-term liability, which reduces the amount of current assets available for day-to-day operations. Selling inventory at a profit and collecting an accounts receivable both involve increasing current assets, while selling a fixed asset for book value has no effect on current assets. Paying an accounts payable involves using a current liability to pay off a debt, which has no effect on net working capital if the current ratio is greater than 1.0.
Learning Objectives
- Evaluate the effects of cash flow dynamics and financing determinations on the business's fiscal condition.