Question

Suppose that Linksys is considering the development of a wireless home networking​ appliance, called​ HomeNet, that will provide both the hardware and the software necessary to run an entire home from any Internet connection.​ Linksys's receivables are 14.2% of sales and its payables are 15.8% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and cost of goods sold​ (COGS) will be as​ follows:

Year	0	1	2	3	4
Sales		$23,578	$26,463	$23,579	$8,694
COGS		$9,532	$10,698	$9,532	$3,515

The required investment in net working capital for year 0 is ____

​The required investment in net working capital for year 1 is ____

The required investment in net working capital for year 2 is ____

The required investment in net working capital for year 3 is ____

The required investment in net working capital for year 4 is ____

Answer 1

Year	0	1	2	3	4
Sales		23,578.00	26,463.00	23,579.00	8,694.00
COGS		9,532.00	10,698.00	9,532.00	3,515.00
Receivables i.e. 14.2% of Sales		3,348.08	3,757.75	3,348.22	1,234.55
Payables i.e. 15.8% of COGS		1,506.06	1,690.28	1,506.06	555.37
Working Capital = Receivables - payables		1,842.02	2,067.46	1,842.16	679.18
Required Investment in Net working capital = Working capital required in current year - Working capital in previous year		1,842.02	225.44	(225.30)	(1,162.98)
Note: negative amount denotes release of working capital