Question

A new project would require an immediate increase in raw materials in the amount of $1,000. The firm expects that accounts payable will automatically increase $800. How much must the firm expect its investment in net working capital to change if they accept this project?

a. +$1,800b. +$200c. −$200d. −$1,800

Answer 1

b) +$200

Step-by-step explanation:

Net Working Capital (NWC) or simply Working capital is the calculation between an organisation's current assets including accounts receivable, inventory and cash and the organisation's current liabilities including payables and advances among others. It simply measures how liquid an organisation is enough to meet its current obligations (liabilities).

Calculate: The Net working Capital if the new project is accepted

=NWC= Current assets - current liabilities

Increase in raw materials is a current asset = $1000

Increase in accounts payable is a current liability= $800

Therefore NWC = $1,000 - $800

=$200