Which of the Following Statements Regarding Investment in Working Capital

question 20

Multiple Choice

Which of the following statements regarding investment in working capital is incorrect?

• A) Investment in working capital, unlike investment in plant and equipment, represents a positive cash flow.
• B) The cash flow is measured by the change in working capital, not the level of working capital.
• C) The working capital may change during the life of the project.
• D) Working capital is recovered at the end of the project.

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Definitions:

Variable Expenses

Costs that change in proportion to business activity or production volume, such as materials costs, direct labor, and utilities for machinery.

Minimum Required Rate Of Return

The lowest acceptable return on an investment, used as a benchmark for evaluating potential investments.

Average Operating Assets

This refers to the average value of the assets used in operations over a certain period, which can indicate the efficiency of asset use in generating income.

Sales

The revenue generated from the selling of goods or services by a company or an enterprise to its customers.