Question

Hunter's Hut is considering a project that will require additional inventory of $48,000 and will increase accounts payable by $22,000. Accounts receivable is currently $297,000 and is expected to increase by four percent if this project is accepted. The company requires NWC at the end of each year equal to ten percent of annual sales that are expected to be a constant of $550,000 each year. What is the project's cash flow for the change in net working capital in Year 1

Answer 1

Answer:

the project cash flow is $92,880

Explanation:

The computation of the project cash flow for the change in net working capital in the year 1 is shown below:

Working capital needed for the year 1 $55,000 ($550,000 × 10%)

Add: Additional inventory $48,000

Add: Increase in account receivable $11,880 ($297,000 × 4%)

Less: Increase in accounts payable $22,000

Project cash flow $92,880

Hence, the project cash flow is $92,880