Final answer:
To find the total initial project cash flow needed for net working capital, we calculate the net changes in current assets and liabilities. The total initial cash flow needed is the sum of the initial investment in inventory, the decrease in accounts payable, and the decrease in accounts receivable, which equals $177,000.
Step-by-step explanation:
To calculate the initial project cash flow needed for net working capital for the Bennington Bicycle Company, first, we consider the changes in current assets and current liabilities. An increase in inventory requires an outflow of cash, while a decrease in accounts payable and accounts receivable will release cash for the project. To calculate the net change in working capital, we take the initial additional inventory investment of $128,000, subtract the decrease in accounts payable of $7,000, and add the decrease in accounts receivable of $56,000.
The initial project cash flow (CF) for net working capital, therefore, can be calculated as follows.
Net change in working capital = $128,000 - $7,000 + $56,000 = $177,000.
However, since the question also mentions a tax rate of 35%, and cash flows are affected by taxes, the tax effects should be considered if the question implies there may be tax-related adjustments. If these are deductible changes, the tax shield can be calculated by multiplying the net change in working capital by the tax rate. But as no specific tax-related adjustments are indicated for the changes in inventory, accounts payable, and accounts receivable, we'll disregard the tax rate for the net working capital calculation in this response.
Thus, the total initial cash flow needed for net working capital is $177,000.