Question

Watson landscaping is considering a project that will require additional inventory of $12,000 and will increase accounts payable by $19,000. accounts receivable is currently $302,000 and is expected to increase by 5 percent if this project is accepted. what is the project's initial cash flow for net working capital (nwc)? (hint: nwc = inventory accounts receivable - accounts payable. initial investment in nwc is a cash outflow) If the accounts receivable is currently $302,000 and is expected to increase by 5 percent, what will be the new accounts receivable after the project is accepted?

a. $302,500
b. $317,100
c. $316,000
d. $317,600

Answer 1

The initial investment in net working capital for the project is a cash outflow of $310,100. The new accounts receivable after the project's acceptance will be $317,100, which corresponds to option B.

Step-by-step explanation:

The project's initial cash flow for net working capital (NWC) can be computed by the change in inventory, accounts receivable, and accounts payable. The new accounts receivable after the project is accepted can be calculated by increasing the current accounts receivable of $302,000 by 5 percent.

To find the NWC change:

• Additional inventory required: +$12,000
• Increase in accounts payable: +$19,000
• Current accounts receivable: $302,000
• 5 percent increase in accounts receivable: $302,000 x 0.05 = $15,100
• New accounts receivable: $302,000 + $15,100 = $317,100
• Change in NWC = ($12,000 + $317,100) - $19,000 = $310,100
• Initial investment in NWC (cash outflow) = -$310,100