Question

Question text

When computing the total cash outflow needed to start a project we must include not only the cost of the equipment acquired, but also typically any change in ________.

Select one:

a. net income

b. interest expense

c. working capital

d. dividend payment

Answer 1

Answer :C) Working capital

Working capital is the difference between the current assets and current liabilities. Working capital determines the ability of the company to meet its short term liablities. When an equipment is bought there is cash outflow which will effect in reduced working capital of the firm. Working capital cover the initial operating expense of the project, like the raw material, maintanence etc.Therefore it is important that a firm should consider working capital of the firm before making any investments.

When computing the total cash outflow needed to start a project we must include not only the cost of the equipment acquired, but also typically any change in Working Capital