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.)

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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