Which of the Following Statements About Net Working Capital (NWC)

question 76

Multiple Choice

Which of the following statements about net working capital (NWC) is correct?

• A) NWC is positive for all firms.
• B) As NWC decreases, potential liquidity increases.
• C) NWC excludes inventory, which is deemed illiquid.
• D)Decreases in NWC can increase the firm's risk.

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Definitions:

Loanable Funds

The total funds available from savers for borrowing in the financial markets, used for investments, purchasing goods, or other purposes.

Private Investment

Spending by businesses or individuals on capital goods, such as factories, machinery, and homes, which is used to produce goods or services.

Demand For Loanable Funds

The total quantity of loans that borrowers are willing to take out at various interest rates, holding all else equal.

Equilibrium Interest Rate

The interest rate at which the quantity of loanable funds demanded equals the quantity supplied, leading to a balance in the money market.