A company is considering expanding operations to meet growing demand. With the capital expansion the working capital requirements are expected to change. Management expects cash to increase by £10,000, accounts receivable by £20,000, and inventories by £30,000. At the same time accounts payable will increase by £40,000, accruals by £30,000, and long- term debt by £80,000. The change in net working capital is
A) a decrease of £10,000.
B) an increase of £10,000.
C) a decrease of £90,000.
D) an increase of £80,000.

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. The increase in current assets is £60,000 (£10,000 cash + £20,000 accounts receivable + £30,000 inventories) and the increase in current liabilities is £70,000 (£40,000 accounts payable + £30,000 accruals). The change in net working capital is a decrease of £10,000 (£60,000 - £70,000).

A Company Is Considering Expanding Operations to Meet Growing Demand