All of the following are anticipated effects of a proposed project.Which of these should be included in the initial project cash ﬂow related to net working capital?
I.An inventory decrease of €5,000.
II.An increase in trade receivables of €1,500.
III.An increase in non-current assets of €7,600.
IV.A decrease in trade payables of €2,100.

Question

Quizplus · Accepted Answer

Net working capital is the difference between current assets and current liabilities. Any changes in current assets or current liabilities impact the net working capital, and thus, should be included in the initial project cash flow related to net working capital.

I. An inventory decrease of €5,000 is a current asset and would result in a positive impact on net working capital. Hence, it should be included in the initial project cash flow related to net working capital.

II. An increase in trade receivables of €1,500 is a current asset and would result in a negative impact on net working capital. Hence, it should be included in the initial project cash flow related to net working capital.

III. An increase in non-current assets of €7,600 is not a current asset and does not impact net working capital. Hence, it should not be included in the initial project cash flow related to net working capital.

IV. A decrease in trade payables of €2,100 is a current liability and would result in a negative impact on net working capital. Hence, it should be included in the initial project cash flow related to net working capital.

Therefore, options A, B, and C can be eliminated. Option D includes all the changes that impact net working capital, and hence, is the correct answer. Option E includes an item (increase in non-current assets) that does not impact net working capital, and hence, is incorrect.

All of the Following Are Anticipated Effects of a Proposed