Question

Consider a firm Theta that spends $60 to produce goods in year 1. In year 2 it sells these goods for $100, but its customers pay their bills with a delay therefore the payment is not received until year 3. What's the amount of change in net working capital for each year? Multiple Choice yeart: $60; year 2: 540; year 3:-$100 year 1: 560, year 2:50 year 3.8100 year 190. year 2.560 year 3:50 year 1:50 year 25100 yeat 3:50

Answer 1

The correct answer is Option B

The working capital refers to the change in the current asset less current liabilities, On First day, the company has incurred the cost of $60 So it is an expense, so should be represented as (-60)

On the second day, the company sold the item but didn't receive any amount so the working capital would not be affected but on the Third day, it received the money which increases the current assets thus increasing the working capital.