Question

Simpson Corporation expects to sell the following number of units of their newest product: Year Unit Sales 1 8,000 2 9,000 3 12,000 4 15,000 The revenue per unit is $180. NWC starts out at $50,000, then rises to 15% of sales. What is the change in cash flow for the NWC balance at the end of year 2

Answer 1

$27,000

Step-by-step explanation:

Years Units Selling Sales NWC requirement Δ in Cash flows

sales price$ revenue$ 50,000 / 15% for NWC

0 - - - $50,000 $50,000

1 8000 180 1,440,000 $216,000 $166,000

2 9000 180 1,620,000 $243,000 $27,000

3 12000 180 2,160,000 $324,000 $81,000

4 15000 180 2,700,000 $405,000 $81,000

Note: Cashflow for NWC is derived by Cumulative difference in Cash flows for Present Year and previous year. Hence, the change in cash flow for the NWC balance at the end of year 2 is $27,000