Table 15.2 The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent.
-If the firm was to shift $3,000 of current assets to fixed assets, the firm's net working capital would ________, and the risk of insolvency would ________, respectively. (See Table 15.2)

Question

Table 15.2  The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent.
-If the firm was to shift $3,000 of current assets to fixed assets, the firm's net working capital would ________, and the risk of insolvency would ________, respectively. (See Table 15.2)

Quizplus · Accepted Answer

Shifting $3,000 from current assets to fixed assets would decrease net working capital (current assets - current liabilities) and increase the risk of insolvency by reducing liquidity.

Table 152 the Company Earns 5 Percent on Current Assets