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 five 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.

Question

Quizplus · Accepted Answer

The loan increases the company's current assets (cash) by $75,000 without immediately affecting current liabilities, thus increasing working capital by the same amount.

Hard-Up Ltd Has a Current Ratio of 0