Question

For project A, the cash flow effect from the change in net working capital is expected to be 500 dollars at time 2 and the level of net working capital is expected to be 2,600 dollars at time 1. What is the level of current assets for project A expected to be at time 2 if the level of current liabilities for project A is expected to be 1,900 dollars at time 2?

Answer 1

In this question, we need to calculate the Current Assets for Project A at Time 2. Let's solve this step by step:

Step 1: Calculate the Net working capital at Time 2 using Net working Capital at Time 1.

In the question, we are given the change in net working capital at time 2 whose formula is as following:

Change in Net working capital (Time 2) =Net Working Capital (T2) - Net Working Capital (T1)

$500 = Net working Capital (T2) - $2600

$500 + $2600 = Net working Capital (T2)

$3100 = Net Working Capital (T2).

Now, we have the Net working Capital at T2 ie. $3,100

Step 2: Calculate the Current Assets from Net working Capital calculated in previous step.

Net working capital = Current Assets - Current Liabilities

$3100 = Current Assets - $1900

Current Assets = $3100 - $1900

Current Assets = $1200

Level of current assets of Project A for T2 are $1,200

Note: T1 means Time 1 and T2 means Time 2 for the sake of convenience.