Which One of the Following Statements Concerning Net Working Capital

question 6

Multiple Choice

Which one of the following statements concerning net working capital is correct?

• A) Net working capital increases when inventory is purchased with cash.
• B) Net working capital excludes inventory.
• C) Total assets must increase if net working capital increases.
• D) Net working capital may be a negative value.
• E) Net working capital is the amount of cash a firm currently has available for spending.

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Definitions:

Natural Monopoly

A market condition where due to high fixed or startup costs, a single firm can supply a good or service to an entire market at a lower cost than multiple companies.

Network Effects

Increases in the value of a product to each user, including existing users, as the total number of users rises.

Price Discrimination

The strategy of selling the same product to different customers at different prices based on willingness to pay, rather than differences in production costs.

"Fair Return" Price

A price set at a level intended to allow a firm to cover its costs and earn a reasonable profit, often regulated in public utility sectors.