For project A in year 2, inventories increase by $12,000 and accounts payable increase by $2,000. Accounts receivable remain the same. Calculate the increase or decrease in net working capital for year 2.
A)Decreases by $14,000
B)Increases by $14,000
C)Decreases by $10,000
D)Increases by $10,000

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. The increase in inventories ($12,000) increases current assets, while the increase in accounts payable ($2,000) increases current liabilities. The net effect is an increase in net working capital by $10,000 ($12,000 - $2,000). Accounts receivable remaining the same does not affect the calculation.

For Project a in Year 2, Inventories Increase by $12,000