A company that makes decorations for Christmas trees has high sales in its fourth quarter but very low sales during the rest of the year. It manufactures decorations steadily throughout the year, however. Which of the following is NOT a likely consequence of this scenario?
A) The firm will need sources of short-term cash to fund inventory in the second and third quarters.
B) The firm will see negative net cash flows in the second and third quarter.
C) The firm will have a large short-term surplus in the fourth quarter.
D) Accounts payables will rise from the first to fourth quarter.

Question

Quizplus · Accepted Answer

D) Compute the working capital needs of each month by using the formula:
Accounts Receivable + Inventory - Accounts Payables = Working Capital
For the month of October, working capital needs are ($18,000 + $16,000 - $3,000) = $31,000

A Company That Makes Decorations for Christmas Trees Has High