If demand for a firm's products suddenly increases so that inventory decreases while sales increase, how will the firm's needs for net working capital react?
A) Net working capital would increase.
B) Net working capital would decrease.
C) There would be no change in net working capital.
D) Net working capital would first decrease, then increase slowly over time.

Question

Quizplus · Accepted Answer

When demand increases, inventory decreases and sales increase, leading to higher accounts receivable and lower inventory levels, which reduces the net working capital initially.

If Demand for a Firm's Products Suddenly Increases So That