Question

Benson Oil Palm Plantation has current assets of GHc450,000 and current liabilities of GHc300,000. Benson could increase its working capital by *
(a) Prepayment of GHc100,000 of next year's rent
(b) Refinancing GHc100,000 of short-term debt with long-term debt
(c) Purchase of GHc100,000 temporary investments for cash
(d) Collection of GHc100,000 accounts receivables

Answer 1

Working capital is the difference between the company's current assets and current liabilities. Current assets include cash, inventory, accounts receivables, etc. Current liabilities include accounts payable, short term debt, etc.

Net working capital = Current assets - current liabilities

If the company refinances GHc100,000 of short term debt with long term debt, it reduces its current obligation/liability and hence increases its net working capital.

All the other options either decrease working capital or have no change at all.

Hence the answer is option b) Refinancing GHc100,000 of short-term debt with long-term debt

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