A ﬁrm starts its year with a positive net working capital.During the year, the ﬁrm acquires more short-term debt than it does short-term assets.This means that:
A)the ending net working capital will be negative.
B)both accounts receivable and inventory decreased during the year.
C)the beginning current assets were less than the beginning current liabilities.
D)trade payables increased and inventory decreased during the year.
E)the ending net working capital can be positive, negative, or equal to zero.

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. If a firm acquires more short-term debt (increasing current liabilities) than short-term assets, it will reduce its net working capital. However, without knowing the exact amounts or the initial net working capital, it's impossible to determine if the ending net working capital will be positive, negative, or zero. It depends on the initial state and the magnitude of changes in assets and liabilities.

A ﬁRm Starts Its Year with a Positive Net Working