Question

A new project would require an immediate increase in raw materials in the amount $6,000. The firm expects that accounts payable will automatically increase $2,000. How much must the firm expect its investment in net working capital to increase if they accept this project

Answer 1

The project will increase the net working capital of the firm by $4000

Step-by-step explanation:

Net working capital measure how fast a company can convert its asset to cash, the networking capital can be obtained with the expression below;

net working capital (NWC) = current assets - current liabilities

Current asset = Increase in raw materials = $6,000

Current liabilities = accounts payable increase = $2,000

NWC= Increase in raw materials-increase in accounts payable

=$6,000 -$2,000

=$4000

Therefore this project will increase the net working capital of the firm by $4000