Question

Castle View Games would like to invest in a division to develop software for a​ soon-to-be-released video game console. To evaluate this​ decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the following estimates​ (in millions of​ dollars):

    Year 1   Year 2   Year 3   Year 4   Year 5
Cash   7   11    16    16    15
Accounts receivable    22    26    23    21    23
Inventory    5    8    10    13    16
Accounts payable   18    21   24    26 32

Assuming that Castle View currently does not have any working capital invested in this​ division, calculate the cash flows associated with changes in working capital for the first five years of this investment. ​(Note: Enter decreases as negative​ numbers.)

Net working capital in this problem is the sum of​ Cash, Accounts​ Receivable, and Inventory​ (Lines 1,​ 2, and​ 3) less Accounts Payable​ (Line 4).

The change in working capital for year 1 is ​$_____.  ​(Round to the nearest​ integer.)

The change in working capital for year 2 is $_____.  ​(Round to the nearest​ integer.)

The change in working capital for year 3 is ​$_____.  ​(Round to the nearest​ integer.)

The change in working capital for year 4 is​ $_____.  ​(Round to the nearest​ integer.)

The change in working capital for year 5 is ​$_____.  ​(Round to the nearest​ integer.)

Answer 1

Working capital = Current Assets - Current Liabilities
=cash + accounts receivables + inventory - accounts payable
Change in working capital = Working capital this year - working capital last year
	Year 1	Year 2	Year 3	Year 4	Year 5
Cash	7	11	16	16	15
Accounts receivables	22	26	23	21	23
Inventory	5	8	10	13	16
Accounts payable	18	21	24	26	32
Working Capital	16	24	25	24	22
Change in working capital	16	8	1	-1	-2
i.e.	16,000,000	8,000,000	1,000,000	(1,000,000)	(2,000,000)
Note: Negative amount denotes release