Question

The Card Shoppe needs to maintain 21 percent of its sales in net working capital. Currently, the store is considering a four-year project that will increase sales from its current level of $349,000 to $408,000 the first year and to $414,000 a year for the following three years of the project. What amount should be included in the project analysis for net working capital in Year 4 of the project

Answer 1

Answer:

$13,650

Explanation:

The computation of net working capital recovery is shown below:-

Net working capital recovery = (Sales in the 4th year of the project  - Sales before the project) × Sales percentage

= ($414,000 - $349,000) × 21%

= ($414,000 - $349,000) × 0.21

= $65,000 × 0.21

= $13,650

Therefore for computing the net working capital recovery we simply applied the above formula.