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):  ​(To copy the table below and use in​ Excel, click on icon in the upper right corner of​ table.)

   Year 1   Year 2   Year 3   Year 4   Year 5
Cash   5   10   15   15   14
Accounts receivable   19   23   24   23   24
Inventory   5   8   12   13   16
Accounts payable   18   22   23   29   30

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.)

The change in working capital for year 1 is ​$ nothing million.

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	5	10	15	15	14
Accounts receivables	19	23	24	23	24
Inventory	5	8	12	13	16
Accounts payable	18	22	23	29	30
Working Capital	11	19	28	22	24
Change in working capital in millions	11	8	9	-6	2
i.e.	11,000,000	8,000,000	9,000,000	(6,000,000)	2,000,000
Note: Negative amount denotes release