Which of the following increases the firm's net working capital?
A) an increase in plant financed by retained earnings
B) paying a cash dividend
C) retaining earnings and increasing the firm's cash
D) paying off an account payable

Question

Which of the following increases the firm's net working capital?​
A) ​an increase in plant financed by retained earnings
B) ​paying a cash dividend
C) ​retaining earnings and increasing the firm's cash
D) ​paying off an account payable

Quizplus · Accepted Answer

Retaining earnings and increasing the firm's cash will increase the firm's net working capital as it increases the amount of cash available to the firm for day-to-day operations. The other options do not directly result in an increase in the net working capital. An increase in plant financed by retained earnings may increase the firm's assets but it also increases its liabilities and therefore does not directly impact the net working capital. Paying a cash dividend and paying off an account payable both decrease the amount of cash available to the firm and therefore decrease the net working capital.

Which of the Following Increases the Firm's Net Working Capital?​

Which of the Following Increases the Firm's Net Working Capital?