If a firm increases its cash balance by issuing additional shares of common stock, net working capital

Remains unchanged and the current ratio remains unchanged.
Increases and the current ratio remains unchanged.
Increases and the current ratio decreases.
Increases and the current ratio increases.Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. Net working capital is the excess of current assets over current liabilities. The current ratio equals current assets divided by current liabilities. Selling stock for cash increases current assets and stockholders’ equity, with no effect on current liabilities. The result is an increase in working capital and the current ratio.