Question

Suppose a firm is considering investing in a new product line which they expect to be obsolete in 5 years. They will need an initial investment in inventory of 540,000. They will also need inventory investment of 95,000 each year of the project. The firm expects to recover the full amount of the investment in NWC at the end of the project. What is their NWC in year 5

Answer 1

recovered net working capital at the end of the project = $1,015,000

Step-by-step explanation:

initial increase in net working capital = $540,000

annual increase in net working capital = $95,000 x 5 = $475,000

cumulative increase in net working capital = $1,015,000

recovered net working capital at the end of the project = $1,015,000, assuming the company recovers it all.