Which of the Following Is True About Net Working Capital

question 17

Multiple Choice

Which of the following is true about net working capital?

• A) Projects in which a firm expands its operations and sales will generally not lead to changes in net working capital.
• B) Changes in net working capital account for differences between accounting sales and costs and actual cash receipts and payments.
• C) Net working capital is typically an expense at the beginning of a project and an equal revenue source at the end of a project; thus, there is no impact on project NPV.
• D) Dollar changes in the cash account are generally equal to changes in net working capital.
• E) Net working capital is not considered an investment of the firm.

---

Definitions:

Variable Cost Method

A pricing strategy that only accounts for direct materials, direct labor, and variable manufacturing overhead costs, excluding any fixed costs from its calculations.

Total Cost Method

An accounting approach that includes all manufacturing or production costs (direct materials, direct labor, and manufacturing overhead) in the cost of finished goods.

Selling Price

The amount a buyer pays to acquire a product or service from a seller.

Total Cost Method

A method of inventory costing that includes all costs of goods purchased or manufactured as inventory costs, without distinguishing between fixed and variable costs.