Question

For project A, the cash flow effect from the change in net working capital is expected to be 300 dollars at time 2 and the level of net working capital is expected to be 2,500 dollars at time 2. What is the level of current assets for project A expected to be at time 1 if the level of current liabilities for project A is expected to be 3,400 dollars at time 1?

Answer 1

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Answer:

Cash flow effects from changes in NWC = -ΔNWC

300 = -ΔNWC2

So ΔNWC2= -300

Since the cash flow effect from the change in net working capital is expected to be $300 at time 2, then the change in NWC at time 2 is expected to be $-300, which means that NWC is expected to increase by $-300 from time 1 to time So,

ΔNWC2= NWC2– NWC1

-300 = 2500 - NWC1

So NWC1 = $2800

We know that Net working capital = Current assets - Current liabilities

So, 2800 = current assets - 3400

=> Current assets at year 1 = $6200