A New Project Requires an Increase in Both Current Assets

question 13

Multiple Choice

A new project requires an increase in both current assets and current liabilities of $125,000 each.What is the overall impact on net working capital investment?

• A) An increase of zero
• B) An increase of $125,000
• C) An increase of $250,000
• D) An increase of $62,500, when averaged over the life of the project

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Definitions:

Bad Debt Expense

An expense recognized when a company determines that a customer's debt is no longer collectible.

Cash Realizable Value

The amount of money that could be realized from assets if they were sold, after settling any associated costs.

Allowance Method

The allowance method is an accounting technique that enables companies to anticipate and adjust for expected bad debts or credit losses in their financial statements.

Direct Write-off Method

Accounting practice where uncollected receivables are directly written off against income when deemed uncollectible, without using an allowance account.