A firm which uses the aggressive financing strategy plans to purchase raw materials in large quantities to take price discounts. The firm will finance the purchase with a long-term loan. The most likely consequence of this action is ________.
A) a decrease in the current ratio
B) an increase in net working capital
C) an increase in risk of insolvency
D) a decrease in net working capital

Question

Quizplus · Accepted Answer

Using a long-term loan to finance the purchase of raw materials increases the firm's current assets without increasing current liabilities, thus increasing net working capital.

A Firm Which Uses the Aggressive Financing Strategy Plans to Purchase