Changes in the net working capital requirements:
A)can affect the cash flows of a project every year of the project's life.
B)only affect the initial cash flows of a project.
C)only affect the cash flow at time zero and the final year of a project.
D)are generally excluded from project analysis due to their irrelevance to the total project.
E)reflect only the changes in the current asset accounts.

Question

Quizplus · Accepted Answer

Changes in net working capital requirements can affect the cash flows of a project every year of the project's life. This is because net working capital represents the difference between the current assets and current liabilities of a company, and changes in these accounts can impact cash flows over time. For example, an increase in accounts receivable may cause a decrease in cash flows in one year, while a decrease in inventory may lead to an increase in cash flows in another year. Therefore, net working capital requirements are an important factor to consider when analyzing the cash flows of a project.

Changes in the Net Working Capital Requirements