A Company Is Considering Expanding Operations to Meet Growing Demand

question 21

Multiple Choice

A company is considering expanding operations to meet growing demand. With the capital expansion the working capital requirements are expected to change. Management expects cash to increase by £10,000, accounts receivable by £20,000, and inventories by £30,000. At the same time accounts payable will increase by £40,000, accruals by £30,000, and long- term debt by £80,000. The change in net working capital is

• A) a decrease of £10,000.
• B) an increase of £10,000.
• C) a decrease of £90,000.
• D) an increase of £80,000.

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Definitions:

Average Variable Costs

The total variable costs divided by the quantity of output produced. It represents the variable cost per unit of output.

Shutting-Down

The process a business undergoes when it ceases operations, often due to financial struggles or strategic decisions.

Short Run

A period during which at least one factor of production is fixed, limiting the ability of a firm to adjust to changes in demand or production levels.

Average Costs

The total cost of production divided by the number of units produced, representing the cost per unit of production.