Question
In: Finance
The following table tracks the main components of working capital over the life of a four-year...
The following table tracks the main components of working capital over the life of a four-year project.
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Accounts receivable | 0 | 150,000 | 225,000 | 190,000 | 0 |
| Inventory | 75,000 | 130,000 | 130,000 | 95,000 | 0 |
| Accounts payable | 25,000 | 50,000 | 50,000 | 35,000 | 0 |
Calculate net working capital and the cash inflows and outflows due to investment in working capital. (Negative answers should be indicated by a minus sign.)
Solutions
Expert Solution
| Net working capital is calculated as current assets less current liabilities. | ||||||
| It reflects the net current assets available with business. | ||||||
| Net working capital = Accounts receivable + Inventory - Accounts payable | ||||||
| Calculation of net working capital is shown below | ||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | ||
| Accounts receivable | $0 | $150,000 | $225,000 | $190,000 | $0 | |
| Inventory | $75,000 | $130,000 | $130,000 | $95,000 | $0 | |
| Accounts payable | $25,000 | $50,000 | $50,000 | $35,000 | $0 | |
| Net working capital | 0 | $50,000 | $230,000 | $305,000 | $250,000 | $0 |
| Calculation of cash inflow and outflow due to investment in working capital is shown below | ||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | ||
| Net working capital | $50,000 | $230,000 | $305,000 | $250,000 | $0 | |
| Cash flow | -$50,000 | -$180,000 | -$75,000 | $55,000 | $250,000 | |
| Cash flow = Net working capital of previous year - Net working capital of current year. | ||||||
| Negative cash flow reflects cash outflow and positive cash flow reflects cash inflow. | ||||||
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