Question

# For project A, the cash flow effect from the change in net working capital is expected...

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?

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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

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