Use This Information to Answer the Following Questions

question 5

Multiple Choice

Use this information to answer the following questions:
Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200,000. It borrows $75,000 from a finance company, repayable in 5 years.
-What is the effect of the loan on working capital?

• A) There is no effect.
• B) There is an increase of $75 000.
• C) There is a decrease of $75 000.
• D) It cannot be determined from the above information.

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Definitions:

Agency Relationship

A legal arrangement in which one party (the agent) acts on behalf of another (the principal) in dealings with third parties.

Fulfillment

The process of completing or carrying out a task, order, or obligation to its final conclusion.

Revocation

The act of recall or annulment of a decision or an offer that had been previously made.

Apparent Agency

A situation where a principal inadvertently leads a third party to reasonably believe that another individual has the authority to act as their agent, even if no such agency relationship actually exists.