Lottie's Boutique needs to maintain 20% of its sales in net working capital. Lottie's is considering a 3-year project which will increase sales from their current level of $110,000 to $130,000 the first year and $145,000 a year for the following two years. What amount should be included in the project analysis for the last year of the project in regards to the net working capital?

Question

Quizplus · Accepted Answer

At the end of the project, the net working capital is released, so the amount included in the project analysis for the last year is the initial increase in net working capital, which is 20% of the increase in sales from $110,000 to $145,000, resulting in $7,000.

Lottie's Boutique Needs to Maintain 20% of Its Sales in Net