Asked by Gaoussou Doucoure on Jul 20, 2024
Verified
Kay's Nautique is considering a project which will require additional inventory of $128,000 and will also increase accounts payable by $45,000 as suppliers are willing to finance part of these purchases. Accounts receivable are currently $80,000 and are expected to increase by 10% if this project is accepted. What is the initial project cash flow needed for net working capital?
A) $75,000
B) $91,000
C) $99,000
D) $136,000
E) $181,000
Accounts Payable
The amount of money a company owes its suppliers for goods and services purchased on credit.
Accounts Receivable
Financial dues from customers to a firm for goods or services that have been dispensed or availed but remain unpaid.
Inventory
An accounting term referring to goods and materials held by a business for the purpose of sale or production.
- Determine the effects of depreciation and changes in net working capital on project cash flows.
Verified Answer
GS
Ginelle SuarezJul 24, 2024
Final Answer :
B
Explanation :
The initial project cash flow needed for net working capital is calculated as the change in current assets minus the change in current liabilities. The additional inventory requires $128,000, and accounts receivable will increase by 10% of $80,000, which is $8,000, totaling $136,000 in additional current assets. The increase in accounts payable provides $45,000 in financing, reducing the net cash flow needed. Therefore, the net working capital needed is $136,000 - $45,000 = $91,000.
Learning Objectives
- Determine the effects of depreciation and changes in net working capital on project cash flows.