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In evaluating a proposed capital budgeting project, Armistead Corp. determined that the following changes would be...

In evaluating a proposed capital budgeting project, Armistead Corp. determined that the following changes would be required in its working capital accounts to support the project.

Cash will increase by $3,000; accounts receivable will increase by $26,000; accounts payable will increase by $15,000; inventory will increase by $24,000; and wages payable will increase by $19,000.

Given this information, what will be the incremental net working capital for the project?

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Answer #1

Incremental Net Working Capital =Change in Current Assets - Change in Current Liabilities

where, Change in Current Assets = Change in Cash + Change in Acounts Receivables + Change in Inventory

= $3,000 + $26,000 + $24,000

= $53,000

Change in Current Liabilities = Change in Accounts payable + Change in wages Payable

= $15,000 + $19,000

= $34,000

Incremental Net Working Capital for the Project = $53,000 - $34,000

= $19,000

So, the incremental net working capital for the project is $19,000

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