Question

Floral Shoppes has a new project in mind that will increase the accounts receivable by $19000, decrease accounts payable by $4000, increase fixed assets by $27000, and decrease inventory by $2000. What is the amount the firm should use as the initial cash flow attributable to net working capital when it analyzes this project?A. $25000B. $12000C. $17000D. $21000E. $52000

Answer 1

Answer:

D. $21000

Explanation:

Calculation for the amount the firm should use as the initial cash flow attributable

Using this formula

Initial cash flow attributable to net working capital = Change in current assets - Change in current liabilities

Let plug in the formula

Initial cash flow attributable to net working capital=[(Increase in Account Receivable $19,000 + Decrease in inventory $2,000)] - ( Decrease accounts payable $4000)

Initial cash flow attributable to net working capital= (19,000 - 2,000) - [-4,000]

Initial cash flow attributable to net working capital=17,000 + 4000

Initial cash flow attributable to net working capital=$21,000

Therefore the amount the firm should use as the initial cash flow attributable to net working capital when it analyzes this project will be $21,000