Question

Part 1 Which events increase net working capital? Select all that apply: Issuing bonds and using...

Part 1

Which events increase net working capital?

Select all that apply:

Issuing bonds and using the proceeds to build a new factory

Making a payment on a 4-year loan

Getting a new 4-year loan and using it to buy inventory

Selling inventory at cost

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Answer #1

C.Getting a new 4- year loan and using it to buy inventory.

Net working capital = current assets - current liabilities.

Getting a new 4 year loan increases cash balance.

Buying inventory increases inventory balance, which is a current asset.

The liability generated in this case will be a long term asset.

Since there is an increase and current asset and no corresponding increase in current liabilities, the transaction will result in increase to net working capital.

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