When Using the Bardahl Formula, an Increase in Annual Credit

question 44

Multiple Choice

When using the Bardahl formula, an increase in annual credit sales (while holding the average accounts receivable balance constant) has which of the following effects on the working capital requirements?

• A)increase
• B)decrease
• C)no effect
• D)increase, decrease, or no effect, depending on other factors

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Definitions:

Preferred Stock

A class of ownership in a corporation with a higher claim on assets and earnings than common stock, often with set dividend payments.

Common Shares Outstanding

The total number of shares of common stock currently held by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders.