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Gorwa Co’s working capital is most likely to increase in which of the following situations?
A)Payments to suppliers are delayed
B)The period of credit extended to customers is reduced
C)Non-current assets are sold
D)Inventory levels are increasedThe correct is answer is C but i don,t know how?
I think the correct answer should be D because investment in inventories always increase the working capital.
Some explanation will be helpful.If non-current assets are sold, then they will have more cash (or receivables if sold on credit) and this will therefore increase the working capital.
Buying inventories obviously increases the inventory, but will decrease cash or increase payables (if bought on credit) which in either case will mean no effect on the working capital.
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