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A firm has accounts receivable of $26,000, inventory of $38,000, and accounts payable of $21,000. If...

A firm has accounts receivable of $26,000, inventory of $38,000, and accounts payable of $21,000. If a new project is accepted, the estimated values are projected to be accounts receivable of $31,000, inventory of $29,000, and accounts payable of $24,000. What is the project's initial net working capital cash flow? Possible Answers: outflow of $4,000, outflow of $1,000, inflow of $3,000, inflow of $7,000

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Answer #1

Existing working capital = Account receivable + Inventory - Account payable

Existing working capital = 26000 + 38000 - 21000

Existing working capital = 43000

.

New working capital = Account receivable + Inventory - Account payable

New working capital = 31000 + 29000 - 24000

New working capital = 36000

.

Now, we can determine the inflow or outflow of the cash:

Net cash flow required for new project = Existing working capital - New working capital

Net cash flow required for new project = 43000 - 36000

Net cash flow required for new project = $7,000

.

As positive value represents inflow in our case; Hence, we are going to receive Inflow of $7,000

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