Question

What is the effect on a firm's net working capital if a new project requires a $30,000 increase in inventory, a $10,000 increase in accounts receivable, a $35,000 expenditure on machinery, and a $20,000 increase in accounts payable? $20,000 $10,000 $55,000 −$5,000 F

Answer 1

$20,000

Step-by-step explanation:

Net Working Capital of a company refers to current assets - current liabilities,

Here items of current assets, are

Increase in inventory by $30,000 will increase net working capital.

Increase in accounts receivables $10,000 will increase net working capital.

Increase in accounts payable $20,000 will decrease net working capital,

Therefore with the above transactions we have

Net increase - Net Decrease = $30,000 + $10,000 - $20,000 = $20,000 increase in net working capital.

$20,000