Question

Net working capital decreases when: A. a dividend is paid to current shareholders. B. a new 3-year loan is obtained with the proceeds used to purchase inventory. C. depreciation increases. D. a credit customer pays his or her bill in full. E. a long-term debt is used to finance a fixed asset purchase.

Answer 1

Answer:

A. Dividend is paid to current shareholders.

Explanation:

This is simply said to be the aggregate amount of all current asset and also all current liability of an investment. It is used in measuring the short term liability of a business by subtracting the current liability from the current asset.

In some cases, it can be tagged a company’s current assets, such as cash, accounts receivable, inventories of goods etc. Many companies sum their's by calculating cash plus accounts receivable plus inventories, less accounts payable and less accrued expenses. This is why it is seen to decrease when dividend is paid to current shareholders.