Ski World is considering a new product line which will require additional inventory costing $146,000. Accounts payable will increase by $87,000 as suppliers are willing to finance a portion of these purchases. Accounts receivable are currently $80,000 and are expected to increase by 20% if this project is accepted. What is the initial net working capital requirement for the new product line?

Question

Quizplus · Accepted Answer

The initial net working capital requirement is calculated as the increase in current assets minus the increase in current liabilities. The increase in inventory is $146,000, and the increase in accounts receivable is 20% of $80,000, which is $16,000. So, the total increase in current assets is $146,000 + $16,000 = $162,000. The increase in accounts payable (a current liability) is $87,000. Therefore, the initial net working capital requirement is $162,000 - $87,000 = $75,000.

Ski World Is Considering a New Product Line Which Will