If Demand for a Firm's Products Suddenly Increases So That

question 73

Multiple Choice

If demand for a firm's products suddenly increases so that inventory decreases while sales increase, how will the firm's needs for net working capital react?

• A) Net working capital would increase.
• B) Net working capital would decrease.
• C) There would be no change in net working capital.
• D) Net working capital would first decrease, then increase slowly over time.

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Definitions:

Interest Payment

The amount paid by a borrower to a lender as compensation for the use of borrowed money, typically expressed as a percentage of the principal.

Premium

The amount paid for an insurance policy or the amount by which a bond sells above its face value.

Discount on Bonds Payable

The discrepancy between a bond's face value and its sale price when it is sold below its face value.

Carrying Value

The book value of an asset or liability on a company's balance sheet, representing its original cost adjusted for any depreciation, amortization, or impairment.