Question

For project A, the cash flow effect from the change in net working capital is expected to be 100 dollars at time 2 and the level of net working capital is expected to be 2,100 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 5,900 dollars at time 1?

Answer 1

Net Working Capital in time 2 = $2,100

Cash Flow Effect from the change in Net working capital = $100

Net Working Capital in Time 2 = Net Working Capital in Time 1 + Cash Flow Effect from the change in Net working capital

or,  Net Working Capital in Time 1 = Net Working Capital in Time 2 - Cash Flow Effect from the change in Net working capital = $2100 - $100 = $2000

Net Working Capital = Current Assets - Current Liabilities

or,Current Assets in Time 1 = Net Working Capital in time 1 + Current Liabilities in time 1 = $ 2000+ $5900 = $7,900