A New Project Will Increase Inventory and Accounts Receivable by an Average

question 48

Multiple Choice

A new project will increase inventory and accounts receivable by an average of $1 million each. Cash levels and other working capital accounts are expected to not change. What effect will the project have on working capital?

• A)Working capital increases by $2 million.
• B)Working capital increases by $1 million.
• C)Working capital is unaffected.
• D)Working capital decreases by $1 million.

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Definitions:

Spot Rate

The existing market cost at which a certain asset is offered for buy or sell, ensuring immediate delivery.

Absolute Purchasing Power Parity

An economic theory that states the price of a good in one country should equal the price of the same good in another country when exchanged at the current exchange rate.

Halifax

A city in the Canadian province of Nova Scotia, often not directly related to financial terms unless specifying a financial institution or geographic economic analysis.

Currency

Currency refers to money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins.